Politics

As the North Rests on Its Laurels, the South Is Rising Fast

Joel Kotkin — Mon, 17 Jun 2013 12:13:31 -0400

One hundred and fifty years after twin defeats at Gettysburg and Vicksburg destroyed the South’s quest for independence, the region is again on the rise. People and jobs are flowing there, and Northerners are perplexed by the resurgence of America’s home of the ignorant, the obese, the prejudiced and exploited, the religious and the undereducated. Responding to new census data showing the Lone Star State is now home to eight of America’s 15 fastest-growing cities, Gawker asked: “What is it that makes Texas so attractive? Is it the prisons? The racism? The deadly weather? The deadly animals? The deadly crime? The deadly political leadership? The costumed sex fetish conventions? The cannibal necromancers?”

The North and South have come to resemble a couple who, although married, dream very different dreams. The South, along with the Plains, is focused on growing its economy, getting rich, and catching up with the North’s cultural and financial hegemons. The Yankee nation, by contrast, is largely concerned with preserving its privileged economic and cultural position—with its elites pulling up the ladder behind themselves.

This schism between the old Confederacy and the Northeastern elites is far more relevant and historically grounded than the glib idea of “red” and “blue” Americas. The base of today’s Republican Party—once the party of the North—now lies in the former secessionist states, along with adjacent and culturally allied areas, such as Appalachia, the southern Great Plains, and parts of the Southwest, notably Arizona, largely settled by former Southerners.

“In almost every species of conceivable statistics having to do with wealth,” John Gunther wrote in 1946, “the South is at the bottom.” But even as Gunther was writing, the region had begun a gradual ascendancy, now in its seventh decade. That began with a belated post-WWII push to promote industrialization, much of it in relatively low-wage industries such as textiles. “Southerners don’t have any rich relatives. God was a Northerner,” the head of the pro-development Southern Regional Council told author Joel Garreau in 1980. “Without a heritage of anything except denial, Southerners, given a chance to improve their standard of living, are doing so.”

While the Northeast and Midwest have become increasingly expensive places for businesses to locate, and cool to most new businesses outside of high-tech, entertainment, and high-end financial services, the South tends to want it all—and is willing to sacrifice tax revenue and regulations to get it. A review of state business climates by CEO Magazine found that eight of the top 10 most business-friendly states, led by Texas, were from the former Confederacy; Unionist strongholds California, New York, Illinois, and Massachusetts sat at the bottom.

The South’s advantages come in no small part from decisions that many Northern liberals detest—lack of unions, lower wages, and less stringent environment laws. But for many Southerners, particularly in rural areas, a job at the Toyota plant with a $15-an-hour starting salary, and full medical benefits, is a vast improvement over a minimum-wage job at Wal-Mart, much less your father’s fate chopping cotton on a tenant farm.

And the business-friendly policies that keep costs down appeal to investors. Ten of the top 12 states for locating new plants are in the former confederacy, according to a recent study by Site Selection magazine. In 2011 the two largest capital investments in North America (PDF)—both tied to natural-gas production—were in Louisiana.

More recently, the region—led by Texas—has moved up the value-added chain, seizing a fast-growing share of the jobs in higher-wage fields such as auto and aircraft manufacturing, aerospace, technology, and energy. Southern economic growth has now outpaced the rest of the country for a generation and it now constitutes by far the largest economic region in the country. A recent analysis by Trulia projects the edge will widen over the rest of this decade, owing to factors including the region’s lower costs and warmer weather.

These developments are slowly reversing the increasingly outdated image of the South as hopelessly backward in high-value-added industries. Alabama and Kentucky are now among the top-five auto-producing states, while the Third Coast corridor between Louisiana and Florida ranks as the world’s fourth-largest aerospace hub, behind Toulouse, France; Seattle; and California.

Southern growth can also be seen in financial and other business services. The new owners of the New York Stock Exchange are based in Atlanta.

While the recession was tough on many Southern states, the area’s recovery generally has been stronger than that of Yankeedom: the unemployment rate in the region is now lower than in the West or the Northeast. The Confederacy no longer dominates the list of states with the highest share of people living in poverty; new census measurements (PDF), adjusted for regional cost of living, place the District of Columbia and California first and second. New York now has a higher real poverty rate than Mississippi.

Over the past five decades, the South has also gained in terms of population as Northern states, and more recently California, have lost momentum. Once a major exporter of people to the Union states, today the migration tide flows the other way. The hegira to the sunbelt continues, as last year the region accounted for six of the top eight states attracting domestic migrants—Texas, Florida, North Carolina, Tennessee, South Carolina, and Georgia. Texas and Florida each gained 250,000 net migrants. The top four losers were New York, Illinois, New Jersey, and California.

These trends suggest that the South will expand its dominance as the nation’s most populous region. In the 1950s, the Confederacy, the Northeast, and the Midwest all had about the same populations. Today the South is nearly as populous as the Northeast and the Midwest combined, and the Census projects the region will grow far more rapidly (PDF) in the years to come than its costlier Northern counterparts.

Yankees tend to shrug off such numbers as largely the chaff drifting down. “The Feet are moving south and west,” The Atlantic’s Derek Thompson wrote in 2010, “while the Brains are moving toward coastal cities.”

To be sure, some Yankee bastions, such as Massachusetts and Connecticut, enjoy much higher percentages of educated people than the South. Every state in the Southeast falls below the national average of percentage of residents 25 and over with at least a bachelor’s degree—but virtually every major Southern metropolitan region has been gaining educated workers faster than their Northeastern counterparts. Over the past decade, greater Atlanta added over 300,000 residents with B.A.s, more than the larger Philadelphia region and almost 70,000 more than Boston.

The region—as recently as the 1970s defined by its often ugly biracial politics—has become increasingly diverse, as newly arrived Hispanics and Asians have shifted the racial dynamics. While the vast majority of 19th-century immigrants to America settled in the Northeast and Midwest, today the fastest-growing immigration destinations—including Nashville, Atlanta, and Charlotte—are in the old Confederacy. Houston ranked second in gaining new foreign-born residents in the past decade, just behind New York City, with nearly three times its size. And Houston and Dallas both now attract a higher rate of immigration than Boston, Chicago, Seattle, or Philadelphia.

These immigrants are drawn to the South for the same reasons as other Americans—more jobs, a more affordable cost of living and better entrepreneurial opportunities. A 2011 Forbes ranking of best cities for immigrant entrepreneurs—measuring rates of migration, business ownership, and income—found several Southeastern cities at the top of the list, with Atlanta in the top slot, and Nashville coming in third.

Then there’s the most critical determinant of future power: family formation. The South easily outstrips the Yankee states in growth in its 10-and-under population. Texas and North Carolina expanded their kiddie population by over 15 percent; and every Southern state gained kids except for Katrina-ravaged Louisiana. In contrast New York, Rhode Island, and Michigan lost children by a double-digit margin while every state in the Northeast as well as California suffered net losses.

The differences are most striking when looking at child-population growth among the nation’s 51 largest metropolitan areas. Eight of the top ten cities for growth in children under 15 were located in the old Confederacy—Raleigh-Cary, Austin, Charlotte, Dallas, Houston, Orlando, Atlanta, and Nashville. New York, Los Angeles, and Boston, along with several predictable rust-belt locals, ranked in the bottom 10.

Historically, regions with demographic and economic momentum tend to overwhelm those who lack it. Numbers mean more congressional seats and more electoral votes, and governors who command a large state budget and the national stage. Unless there is a major political change, the South’s demographic elevation will do little to help Democrats there, who, like Northern Republicans, appear to be an endangered species.

Pundits including the National Journal’s perceptive Ron Brownstein suggest that the GOP’s Southern dominance has “masked” the party’s decline in much of the rest of the country. Other, more partisan voices, like the New Yorker’s George Packer simply dismiss Southern conservatives as overmatched by the Obama coalition of minorities, the young, and the highly educated. The even more partisan Robert Shrum correctly points out that the Southern-dominated GOP is increasingly out of step with the rest of the country on a host of social and economic issues, from income inequality to support for gay marriage.

“A lot of sociologists have projected that the South will cease to exist because of things like the Internet and technology,” Jonathan Wells told Charlotte Magazine. An associate professor of history at UNCC and author of Entering the Fray: Gender, Culture, and Politics in the New South, Wells predicts the region “will lose its distinctive identity that it had in the past.”

It’s unlikely, though, that the South will emulate the North’s social model of an ever-expanding welfare state and ever more stringent “green” restrictions on business—which hardly constitutes a strong recipe for success for a developing economy. It’s difficult to argue, for example, that President Obama’s Chicago, broke and with 10 percent unemployment, represents the beacon of the economic future compared to faster-growing Houston, Dallas, Raleigh, or even Atlanta. People or businesses moving from Los Angeles, New York, or Chicago to these cities will no doubt carry their views on social issues with them, but it’s doubtful they will look north for economic role models.

Instead, you might see some political leaders, even Democrats, in states such as Pennsylvania, Ohio (a Civil War hotspot for pro-Southern Copperheads), and Michigan come to realize that pro-development policies, such as fracking, offer broader benefits than the head-in-the-sand “green” energy policy that slow growth in places like New York and California. The surviving Southern Democrats (by definition, a tough breed) like Houston Mayor Anise Parker have shown that you can blend social liberalism with “good old boy” pro-business policies.

Politicians like Parker, along with Republicans such as former Florida governor Jeb Bush, represent the real future of the states that once made up the Confederacy. As they look to compete with the Northeast and California for the culture, and high-test and financial-service firms that are forced to endure the high cost of the coasts, Southerners are likely to at least begin shrugging off their regressive—and costly—social views on issues like gay marriage.

Bluntly put, if the South can finally shake off the worst parts of its cultural baggage, the region’s eventual ascendancy over the North seems more than likely. High-tech entrepreneurs, movie-makers, and bankers appreciate lower taxes and more sensible regulation, just like manufacturers and energy companies. And people generally prefer affordable homes and family-friendly cities. Throwing in a little Southern hospitality, friendliness, and courtesy can’t hurt either.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register . He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared at The Daily Beast.

Photo by Belle of Louisville.

No Solar Way Around It: Why Nuclear Is Essential to Combating Climate Change

Michael Shellenberger and Ted Nordhaus — Fri, 14 Jun 2013 01:38:14 -0400

Nobody who has paid attention to what's happened to solar panels over the last several decades can help but be impressed. Prices declined an astonishing 75 percent from 2008 to 2012. In the United States, solar capacity has quintupled since 2008, and grown by more than 50 times since 2000, according to US Energy Information Administration data. In 1977, solar panels cost $77 per watt. Today, they are less than a dollar per watt.

So it came as a shock to many and an offense to some to learn that new nuclear plants still cost substantially less than solar. Solar advocates have challenged our recent analysis finding that the electricity from Finland's beleaguered Olkiluoto plant is still four times cheaper than electricity from Germany's solar program, claiming that we cherry-picked cases to make nuclear look good and solar look bad.

It is an odd objection, given that we selected perhaps the most expensive nuclear power plant ever built for our comparison. The complaint is odder still because many of the same critics who accused us of cherry-picking then turned around and, without any apparent irony, cherry-picked small, one-off solar projects as evidence that our analysis is slanted toward nuclear.

The reason we compared the Finnish plant to the German solar program is not just because renewables advocates have long claimed that the two examples prove that solar is cheap and nuclear is expensive. We also compared the two because both projects exist in the real world at significant scale, which helps avoid the cherry-picking problem of overgeneralizing from particular cases. Thanks to generous subsidies, Germany generated 5 percent of its electricity from solar last year — a huge amount compared to other nations. By contrast, last year the United States produced just 0.18 percent of its electricity from solar, according to the EIA.

Some have reasonably asked if there aren't broader surveys of the costs of new solar and new nuclear. There are. Both the International Energy Agency and the EIA have done them, and both find that solar costs substantially more than new nuclear construction.

While those figures represent the cost of the average solar installation today, they don't tell us what it costs for a major industrial economy to scale up solar rapidly, such that it gets a significant percentage of its electricity from solar. To date, Germany is the only major economy in the world that has done so. The costs of Germany's solar feed-in tariff represent the only real world figure we have.

As solar has scaled up in Germany, the costs have declined. But the dynamics are not dissimilar with nuclear. France saw significant cost declines as it scaled up standardized plant designs in the 70s and 80s. The new plant in Finland is a first-of-kind design. Subsequent builds are already showing significantly lower costs. The EPR under construction in France, initiated around the same time as the one in Finland, is expected to cost slightly less. The third and fourth versions of the EPR, currently under construction in China, will be a third the cost of the Finnish plant.

Had we chosen to use the two new Chinese plants, solar would have cost twelve times more than nuclear, rather than just four times more. Of course this comparison would almost certainly have raised further objections that we had compared German apples to Chinese oranges. Yet it turns out that the German solar program has benefited enormously from the scaling up of Chinese solar manufacturing — or in the eyes of the US Solar Energy Association, the US Trade Commission, and the European Union, the outright dumping of solar panels by Chinese firms. Indeed the flood of Chinese solar panels, which take up as much as 80 percent of market share in Europe, has depressed the cost of solar panels by as much as 88 percent according to EU officials.

Surely, if it is appropriate to tout solar cost reductions that have been driven by Chinese mercantilism and industrial policy it is also appropriate to consider the cost benefits that Chinese manufacturing and construction costs are bringing to nuclear — even more so given that the vast majority of future carbon emissions will come from places like China, not Finland or Germany.

Our analysis was further biased toward solar over nuclear by not accounting for the high costs of backing up and integrating intermittent solar electricity. Leading anti-nuclear greens, including Bill McKibben and Robert F. Kennedy Jr., note that for a few hours during a sunny weekend day, solar provided 50 percent of Germany's electricity; at the same time, as we pointed out, only five percent of the country's total electricity came from solar in 2012. What that means is that if Germany doubled the amount of solar, as it intends to do, there might be a few hours or even days every year where the country gets 100 percent of its electricity from solar, even though solar only provides 10 percent of its annual electricity needs.

What happens beyond that is anyone's guess. Some say Germany could sell its power to other countries, but this would mean other countries couldn't move to solar since Germany would provide electricity at the same hours it would seek to unload it on their neighbors. Solar advocates say cheap utility-scale storage is just around the corner; in fact, choices are extremely limited and expensive. As a result, analysis by the Clean Air Task Force suggest that integration costs for solar and wind are likely to surge dramatically should renewables rise much above 20 or 30 percent of total electrical generation (see graph below).

Costs of adding intermittent generation are likely to scale super-linearly with penetration, creating a deployment barrier. Some examples (various bases) in the figure: “Wind A” is the marginal cost per MWh of wind in ERCOT relative to the same index at 0% wind penetration. “Wind B” is the reciprocal of total system wind capacity factor in CAISO relative to 0% wind penetration (an indicator relative total system construction cost).“Wind C” is the number of annual CCGT start-ups in Ireland relative to 0% wind penetration (a proxy for system-wide O&M costs and emissions due to cycling).“PV” is the marginal cost per MWh of PV in ERCOT relative to the same index at 0% PV penetration. “RE Bundle” is the relative size of the US bulk transmission system (million MW-miles) due to bundled renewables (roughly ½ wind+solar) relative to 0% penetration.

Sources: CATF from Denholm & Hand, 2011 (Wind A); Hart et al, 2012 (Wind B); Troy et al, 2010 (Wind C); Denholm & Margolis, 2006 (PV); NREL, 2012 (RE Bundle).

We do not present this evidence to advocate against solar subsidies or Germany's program. We have long advocated that governments spend significantly more on energy innovation, including the deployment of solar panels. But it's one thing to endorse Germany's big investment in solar in the name of accelerating solar innovation, and it's quite another to claim — as McKibben, Kennedy, and environmental groups do — that Germany's solar program and increasingly cheap solar panels demonstrate that solar energy is ready to scale, capable of substantially displacing fossil energy, and a viable alternative to nuclear.

In reality, there's little evidence that renewables have supplanted — rather than supplemented — fossil fuel production anywhere in the world. Whatever their merits as innovation policy, Germany’s enormous solar investments have had little discernible impact on carbon emissions. Germany’s move away from baseload zero-carbon nuclear has resulted in higher coal consumption since 2009. In 2012, Germany's carbon emissions rose 2 percent.

Nuclear, by contrast, replaces fossil energy. A recent analysis by the Business Spectator’s Geoff Russell finds that big nuclear programs around the world have shown the ability to scale up three to seven times faster than Germany's vaunted Energiewende (see below). In 1970, fossil fuels supplied roughly two-thirds of France’s electricity, with the balance mostly coming from hydro. By 1990, fossil’s share of the electricity supply had dropped to 10 percent, according to EIA data, while nuclear supplied 80 percent, an energy mix that still holds today. As a result, France’s electricity sector emits 80 grams of CO2 per kWh, compared to Germany’s 450 grams CO2 per kWh. Sweden and Ontario, which also have large shares of nuclear in their electricity supply, augmented by large hydro projects, are even lower.

In the United States, nuclear power grew from supplying zero percent of US electricity in 1965 to 20 percent in 1990. Over that same period, coal generation remained flat, rising from 54 percent of generation in 1965 to 60 percent in 1990, during a period when total electricity demand roughly tripled. Since the early 1990’s, when the US nuclear build-out stalled, the vast majority of new US electricity demand has been met by coal and gas.

Even so, nuclear still needs to get better and cheaper if it is going to displace fossil energy at any scale that will make much difference in terms of climate change. Next generation plants that are safer, cheaper, and more reliable will be necessary if nuclear is to be more than a hedge against fossil energy in the developing world and to see significant new deployment at all in the developed world. Solar, wind, and energy storage technologies will need substantial further advances if they are going to even begin to achieve the scale possible with present day nuclear.

Our analysis serves a broader point: we must reject technology tribalism if we are to meet rising energy demand and combat global warming. This entails paying close attention to the substantial challenges emergent technologies face, not ignoring them, and discerning how far different technologies are from being capable of replacing fossil energy. The question is not whether solar is the solution, or nuclear. The question is what technologies will deliver clean, reliable, and cheap energy to a growing population, and what it will take to get those technologies to scale. Any movement serious about addressing climate change will thus be characterized by a broad commitment to innovation and a willingness to take a hard, non-ideological look at present day zero-carbon technologies.

Shellenberger and Nordhaus are co-founders of the Breakthrough Institute, a leading environmental think tank in the United States. They are authors of Break Through: From the Death of Environmentalism to the Politics of Possibility.

This piece originally appeared at TheBreakthrough.org.

Photo Credit: SonomaPortal.com.

The Unexotic Underclass

C.Z. Nnaemeka — Thu, 13 Jun 2013 01:38:31 -0400

The startup scene today, and by ‘scene’ I’m sweeping a fairly catholic brush over a large swath of people – observers, critics, investors, entrepreneurs, ‘want’repreneurs, academics, techies, and the like – seems to be riven into two camps.

On one side stand those who believe that entrepreneurs have stopped chasing and solving Big Problems – capital B, capital P: clean energy, poverty, famine, climate change, you name it. I needn’t replay their song here; they’ve argued their cases far more eloquently elsewhere. In short, they contend that too many brains and dollars have been shoveled into resolving what I call ‘anti-problems’ – interests usually centered about food or fashion or ‘social’ or gaming. Something an anti-problem company might develop is an app that provides restaurant recommendations based on your blood type, a picture of your childhood pet, the music preferences of your 3 best friends, and the barometric pressure of the nearest city beginning with the letter Q. (That such an app does not yet exist is reminder still of how impoverished a state American scientific education has descended. Weep not! We redouble our calls for more STEM funding.)

On the other side stand those who believe that entrepreneurs have stopped chasing and solving Big Problems – capital B, capital P – that there are too many folks resolving anti-problems… BUT just to be on the safe side, the venture capitalists should keep pumping tons of money into those anti-problem entrepreneurs because you never know when some corporate leviathan – Google, Facebook, Yahoo! – will come along and buy what yesterday looked like a nonsense app and today is still a nonsense app, but a nonsense app that can walk a bit taller, held aloft by the insanities of American exceptionalism. For not only is our sucker birthrate still high in this country (one every minute, baby!), but our suckers are capitalists bearing fat checks.

On the other other side, a side that receives scant attention, scanter investment, is where big problems – little b, little p – reside. Here, you’ll find a group I’ll refer to as the unexotic underclass. It’s rather quiet in these parts, except during campaign season when the politicians stop by to scrape anecdotes off the skin of someone else’s suffering. Let’s see who’s here.

To your left are single mothers, 80% of whom, according to the US Census, are poor or hovering on the nasty edges of working poverty. They are struggling to raise their kids in a country that seems to conspire against any semblance of proper rearing: a lack of flexibility in the workplace; a lack of free or affordable after-school programs; an abysmal public education system where a testing-mad, criminally-deficient curriculum is taught during a too-short school day; an inescapable lurid wallpaper of sex and violence that covers every surface of society; a cultural disregard for intelligence, empathy and respect; a cultural imperative to look hot, spend money and own the latest “it”-device (or should I say i-device) no matter what it costs, no matter how little money Mum may have.

Slightly to the right, are your veterans of two ongoing wars in the Middle East. Wait, we’re at war? Some of these veterans, having served multiple tours, are returning from combat with all manner of monstrosities ravaging their heads and bodies. If that weren’t enough, welcome back, dear vets, to a flaccid economy, where your military training makes you invisible to an invisible hand that rewards only those of us who are young and expensively educated.

Welcome back to a 9-month wait for medical benefits. According to investigative reporter Aaron Glantz, who was embedded in Iraq, and has now authored The War Comes Home: Washington’s Battle against America’s Veterans, 9 months is the average amount of time a veteran waits for his or her disability claim to be processed after having filed their paperwork. And by ‘filed their paperwork,’ I mean it literally: veterans are sending bundles of papers to some bureaucratic Dantean capharnaum run by the Department of Veterans’ Affairs, where, by its own admission, it processes 97% of its claims by hand, stacking them in heaps on tables and in cabinets.

In the past 5 years, the number of vets who’ve died before their claim has even been processed has tripled. This is America in 2013: 40 years ago we put a man on the moon; today a young lady in New York can use anti-problem technology if she wishes to line up a date this Friday choosing only from men who are taller than 6 feet, graduated from an Ivy, live within 10 blocks of Gramercy, and play tennis left-handed…

…And yet, veterans who’ve returned from Afghanistan and Iraq have to wait roughly 270 days (up to 600 in New York and California) to receive the help — medical, moral, financial – which they urgently need, to which they are honorably entitled, after having fought our battles overseas.

Technology, indeed, is solving the right problems.

Let’s keep walking. Meet the people who have the indignity of being over 50 and finding themselves suddenly jobless. These are the Untouchables of the new American workforce: 3+ decades of employment and experience have disqualified them from ever seeing a regular salary again. Once upon a time, some modicum of employer noblesse oblige would have ensured that loyal older workers be retained or at the very least retrained, MBA advice be damned. But, “A bas les vieux!” the fancy consultants cried, and out went those who were ‘no longer fresh.’ As Taylor Swift would put it, corporate America and the Boomer worker “are never ever getting back together.” Instead bring in the young, the childless, the tech-savvy here in America, and the underpaid and quasi-indentured abroad willing to work for slightly north of nothing in the kinds of conditions we abolished in the 19th century.

For, in the 21st century, a prosperous American business is a soaring 2-storied cake: 1 management layer at top thick with perks, golden parachutes, stock options, and a total disregard for those beneath them; 1 layer below of increasingly foreign workers (If you’re lucky, you trained these people before you were laid off!), who can’t even depend on their jobs because as we speak, those sameself consultants – but no one that we know of course — are scouring the globe for the cheapest labor opportunities, fulfilling their promise that no CEO be left behind.

Above all of this, the frosting on the cake, the nec plus ultra of evolutionary corporate accomplishment: the Director of Social Media. This is the 20-year old whose role it is to “leverage social media to deliver a seamless authentic experience across multiple digital streams to strategic partners and communities.” In other words, this person gets paid six figures to send out tweets. But again, no one that we know.

Time and space and my own sheltered upbringing defend me from giving you the whole tour of the unexotic underclass, but trust that it is big, and only getting bigger.

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Now, why the heck should any one care? Especially a young entrepreneur-to-be. Especially a young entrepreneur-to-be whose trajectory of nonstop success has placed him or her leagues above the unexotic underclass. You should care because the unexotic underclass can help address one of the biggest inefficiencies plaguing the startup scene right now: the flood of (ostensibly) smart, ambitious young people desperate to be entrepreneurs; and the embarrassingly idea-starved landscape where too many smart people are chasing too many dumb ideas, because they have none of their own (or, because they suspect no one will invest in what they really want to do). The unexotic underclass has big problems, maybe not the Big Problems – capital B, capital P – that get ‘discussed’ at Davos. But they have problems nonetheless, and where there are problems, there are markets.

The space that caters to my demographic – the cushy 20 and 30-something urbanites – is oversaturated. It’s not rocket science: people build what they know. Cosmopolitan, well-educated young men and women in America’s big cities are rushing into startups and building for other cosmopolitan well-educated young men and women in big cities. If you need to plan a trip, book a last minute hotel room, get your nails done, find a date, get laid, get an expert shave, hail a cab, buy clothing, borrow clothing, customize clothing, and share the photos instantly, you have Hipmunk, HotelTonight, Manicube, OKCupid, Grindr, Harry’s, Uber, StyleSeek, Rent the Runway, eshakti/Proper Cloth and Instagram respectively to help you. These companies are good, with solid brains behind them, good teams and good funding.

But there are only so many suit customisation, makeup sampling, music streaming, social eating, discount shopping, experience curating companies that the market can bear. If you’re itching to start something new, why chase the nth iteration of a company already serving the young, privileged, liberal jetsetter? If you’re an investor, why revisit the same space as everyone else? There is life, believe me, outside of NY, Cambridge, Chicago, Atlanta, Austin, L.A. and San Fran.

It’s where the unexotic underclass lives. It’s called America. This underclass is not some obscure niche market. Take the single mothers. Per the US Census Bureau, there are 10 million of them today; and an additional 2 million single fathers. Of the single mothers, the majority is White, 1 in 4 is Hispanic, and 1 in 3 is Black. So this is a fairly large and diverse group.

Take the veterans. (I will beat the veteran drum to death.) According to the VA’s latest figures, there are roughly 23 million vets in the United States. That number sounds disturbingly high; that’s almost 1 in 10 Americans. Entrepreneurs and investors like big numbers. Other groups you could include in the underclass: ex-convicts, many imprisoned for petty drug offenses, many released for crimes they never even committed. How does an ex-convict get back into society? And navigate not just freedom, but a transformed technological landscape? Another group, and this one seems to sprout in pockets of affluence: people with food allergies. Some parents today resort to putting shirts and armbands on their kids indicating what foods they can or can’t eat. Surely there’s a better fix for that?

Maybe you could fix that.

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Why do I call this underclass unexotic? Because, those of us, lucky enough to be raised in comfortable environs – well-schooled, well-loved, well-fed – are aware of only 2 groups: those at the very bottom and those at the very top.

We have clear notions of what the ruling class resembles – its wealth, its connections, its interests. Some of you reading this will probably be part of the ruling class before you know it. Some of you probably already are. For the 1% aspirants (and there’s no harm in having such aspirations), hopefully by the time you get there, you will have found meaningful problems to solve – be they big, or Big.

We have clear ideas of what the exotic underclass looks like because everyone is clamoring to help them. The exotic underclass are people who live in the emerging and third world countries that happen to be in fashion now -– Kenya, Bangladesh, Brazil, South Africa. The exotic underclass are poor Black and Hispanic children (are there any other kind?) living in America’s urban ghettos. The exotic underclass suffer from diseases that have stricken the rich and famous, and therefore benefit from significant attention and charity.

On the other hand, the unexotic underclass, has the misfortune of being insufficiently interesting. These are the huddles of Whites – poor, rural working class – living in the American South, in the Midwest, in Appalachia. In oh-so-progressive Northeast, we refer to them as ‘hicks’ and ‘hillbillies’ and ‘trailer trash,’ because apparently, this is the one demographic that American manners have forgotten.

The unexotic underclass are the poor in Eastern Europe, and Central Asia, who just don’t look foreign enough for our taste. Anyone who’s lived in a major European city can attest to the ubiquity of desperate Roma families, arriving from Bulgaria and Romania, panhandling in the streets and on the subways. This past April, the employees of the Louvre Museum in Paris went on strike because they were tired of being pickpocketed by hungry Roma children. But if you were to go to Bulgaria to volunteer or to start a social enterprise, how would the folks back on Facebook know you were helping ‘the poor?’ if the poor in your pictures kind of looked like you?

And of course, the biggest block of the unexotic underclass are the ones I alluded to earlier: that vast, suffocating mass right here in in America. We don’t notice them because they don’t get by on $1 a day. We don’t talk about them because they don’t make $1 billion a year. The only place where they’re popular is in Washington, D.C. where President Obama and his colleagues in Congress can can use members of the underclass to spice up their stump speeches: “Yesterday, I met a struggling family out in yadda yadda yadda…” But there’s only so much Washington can do to help out, what with government penniless and gridlocked, and its elected officials occupying a caste of selfishness, cowardice and spite, heretofore unseen in American politics.

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If you’re an entrepreneur looking for ideas, consider looking beyond the city-centric, navel-gazing, youth-obsessed mainstream. That doesn’t mean you need to fly to the end of the world. Chances are there are more people addressing the Big Problems of slum dwellers in Calcutta, Kibera or Rio, than are tackling the big problems of hardpressed folks in say, West Virginia, Mississippi or Louisiana.

To be clear, I’m not painting the American South as the primary residence of all the wretched of the earth. You will meet people down there who are just as intelligent and cultured and affluent as we pretend everyone up North is.

Second, I’m not pitting the unexotic against the exotic. There is nothing easy or trendy about the work being done by the brave innovators on the ground in Asia, Africa, and Latin America. Some examples of that work: One Earth Designs which helps deliver clean energy and heating solutions to communities in rural China; Sanergy, which is bringing low-cost sanitation to Kenya’s poorest slums; Samasource, which provides contract work to youth and women in Haiti, Ghana, Kenya, Uganda and India. These are young startups with young entrepreneurs who attended the same fancy schools we all know and love (MIT, Harvard, Yale, etc.), who lived in the same big cities where we all congregate, and worked in the same fancy jobs we all flocked to post-graduation. Yet, they decided they would go out and tackle Big Problems – capital B, capital P. We need to encourage them, even if we could never imitate them.

If we can’t imitate them,and we’re not ready for the challenges of the emerging market, and we have no new ideas to offer, then maybe there are problems, right here in America for us to solve…The problems of the unexotic underclass.

____________________________________

Now, I can already hear the screeching of meritocratic, Horatio Algerian Silicon Valley,

“What do we have to do with any of this? The unexotic underclass has to pull itself up by its own bootstraps! Let them learn to code and build their own startups! What we need are more ex-convicts turned entrepreneurs, single mothers turned programmers, veterans turned venture capitalists!

The road out of welfare is paved with computer science!!!”

Yes, of course.

There’s nothing wrong with the entrepreneurship-as-salvation gospel. Nothing wrong with teaching more people to code. But it’s impractical in the short term, and misses the greater point in the long term: We shouldn’t live in a universe of solipsistic startups… where I start a company and produce things only for myself and for people who resemble me. Let’s be honest. Very few of us are members of this unexotic underclass. Very few of us even know anyone who’s in it. There’s no shame in that. That we have sailed on a yacht of good fortune most of our lives — supportive generous families, a stable peaceful democracy, excellent schooling, prestigious careers and companies, relatively good health – is nothing to be ashamed of. Consider yourselves remarkably blessed.

What is shameful though, is that in a country with so many problems, with such a heaving underclass, we find the so-called ‘best and brightest,’ the 20-and 30-somethings who emerge from the top American graduate and undergraduate programs, abandoning their former hangout,Wall Street, to pile into anti-problem entrepreneurship.

Look, I worked for Goldman Sachs immediately after graduating from Wellesley. After graduating from MIT, I worked at a hedge fund. I am not throwing stones. Here in hell, the stones wouldn’t reach you anyhow… If you’re under 30 and in finance, you’ve definitely noticed the radical migration of your peers from Wall Street to Silicon Valley and Silicon Alley. This should have been a good exchange. When I first entered banking, leftist hippie that I was (and still am), my biggest issue was what struck me as a kind of gross intellectual malpractice: how could so many bright historians and economists, athletes and engineers, writers and biogeneticists, from every great school you could think of – Princeton, Berkeley, Oxford, Harvard, Imperial, Caltech, Amherst, Wharton, Yale, Swarthmore, Cambridge, and so on — be concentrated into a single sector, working obscene hours at a sweatshop to manufacture money?

When I look at the bulk of startups today – while there are notable exceptions (Code for America for example, which invites local governments to request technology help from teams of coders) – it doesn’t seem like we’ve aspired to something nobler: it just looks like we’ve shifted the malpractice from feeding the money machine to making inane, self-centric apps. Worse, is that the power players, institutional and individual — the highflying VCs, the entrepreneurship incubators, the top-ranked MBA programs, the accelerators, the universities, the business plan competitions have been complicit in this nonsense.

Those who are entrepreneurially-minded but young and idea-poor need serious direction from those who are rich in capital and connections. We see what ideas are getting funded, we see money flowing like the river Ganges towards insipid me-too products, so is it crazy that we’ve been thinking small? building smaller? that our “blood and judgment” to quote Hamlet, have not been “so well commingled?”

We need someone bold (and older than us) to stand up for Big Problems which are tough and dirty. But what we especially need is someone to stand up for big problems – little b, little p –which are tough and dirty and too easy to overlook.

We need:

A Ron Conway, a Fred Wilson-type at the venture level to say, ‘Kiddies, basta with this bull*%!.. This year we’re only investing in companies targeting the unexotic underclass.”

A Paul Graham and his Y Combinator at the incubator level, to devote one season to the underclass, be it veterans, single moms or overworked young doctors, Native Americans, the list is long: “Help these entrepreneurs build something that will help you.”

The head of an MIT or an HBS or a Stanford Law at the academic level, to tell the entire incoming class: “You are lucky to be some of the best engineering and business and law students, not just in the country, but in the world. And as an end-of-year project, you are going to use that talent to develop products, policy and programs to help lift the underclass.”

Of the political class, I ask nothing. With a vigor one would have thought inaccessible to people at such an age, our leaders in Washington have found ever innovative ways to avoid solving the problems that have been brought before them. Playing brinkmanship games with filibusters and fiscal cliffs; taking money to avoid taking votes. They are entrepreneurs of the highest order: presented with 1 problem, they manage to create 5 more. They have demonstrated that government is not only not the answer, it is the anti-answer…

The dysfunction in D.C. is a big problem.

Entrepreneurs: it looks like there’s work for you there too…

C.Z. Nnaemeka studied Philosophy at Wellesley; logically, she has spent most of her time in finance, beginning at Goldman Sachs. Born in Manhattan to Nigerian parents, she attended French schools, graduating from the Lycée Français de New York. Since then she has alternated between writing, banking, and consulting to startups in Europe, Latin America, and Australia. Previously, she lived in Paris where she founded a political discussion group and was a foreign affairs commentator for the conservative newspaper, Le Figaro. She graduated from MIT in 2010, focusing on Entrepreneurship + Innovation.

The Mad Drive to Subvert Democracy in Toronto

Aaron M. Renn — Wed, 12 Jun 2013 01:38:17 -0400

Let me stipulate that I think Toronto’s Rob Ford is a terrible mayor. In fact, while I might not go so far as Richard Florida, who labeled Ford “the worst mayor in the modern history of cities, an avatar for all that is small-bore and destructive of the urban fabric, and the most anti-urban mayor ever to preside over a big city,” I’m willing to say he’s probably in the running for the title.

The roots of Rob Ford lie in “amalgamation,” the forcible merging of the city of Toronto government with various of its suburbs by the Ontario provincial government. The idea was cost savings, but of course costs went up. Also, it created a Mars-Venus situation that ultimately led to Ford, a former city councilor in Etobicoke, being elected mayor. This would be like a consolidation of Chicago with Cook County in which a member of the Schaumburg city council ended up mayor. Not good. The urban intelligentsia that despises Ford now find themselves in the embarrassing position of having to explain to their friends that they are in total agreement with Wendell Cox, an implacable foe of government consolidations, who predicted these results.

But there’s a big difference between Florida’s bashing of Ford, which falls within the principles of democratic discourse as we’ve come to know it, and what appears to be an effort by some to subvert democracy by finding any pretext to run Rob Ford out of office.

I’m not sure where the idea that the loser in an election tries to undermine the legitimacy of the government of the winner came from. But in the modern era it could be the Republican impeachment of Bill Clinton that launched it. This quickly proved to be standard fare. There was the brouhaha over the “selected not elected” George W. Bush as well as the more passionate strain of “birthers” when it comes to President Obama. Given that, especially in the big leagues, there is always some dirtiness in politics, it’s easy to find things to seize upon to claim someone’s holding of an office is invalid. After all, it appears that Clinton really did commit perjury and there was shall we say some murkiness down in Florida. However, these aren’t truly what the people raising a ruckus cared about. What they cared about was the man in office they didn’t like – and getting him out of it.

Canada has a reputation as a kinder, gentler nation, but they now appear to have imported from America what Clinton labeled “the politics of personal destruction.” Rob Ford has been the target of a series of vicious attacks, generally aided and abetted (if not outright instigated) by the old city Toronto media that clearly don’t like him, designed to drive him out of office.

One was a lawsuit that claimed he should be tossed out of office because of events related to his using official letterhead and such to raise $3,500 for a charity. Believe it or not, the trial judge actually agreed with this and ordered him removed from office. If that’s the threshold for getting someone kicked out of office, I dare say every major politician in America would be gone. Yes, politicians do often use affiliated charities as a, shall we say, lubricating mechanism. Yes, there’s the appearance or even the reality of some impropriety in these things. But this is such small fry stuff that to throw the mayor of the biggest city in the country out of office over it defies belief. If you think this is removal worthy, I’m confident I can find something just as bad in almost any politician that you actually like. Fortunately, saner heads at the appeals level prevailed and the ruling was overturned.

Recently we’ve also seen reports originating from, I kid you not, Gawker, in which some shady Somalis supposedly showed a reporter a cell phone video of Rob Ford smoking crack. Shortly thereafter the Toronto Star got in on the act, saying their reporters had seen the video in the back seat of the car, though with the CYA proviso that they had “no way to verify the authenticity of the video.” Other media that may not have directly originated such a story have piled on and thus there’s a firestorm awhirl.

Where is the video, you might ask? Good question. Supposedly it’s for sale for $200K but oddly no one snapped it up, not even one of the extremely wealthy Ford haters that Toronto has in abundance. So you want to buy it? Oh, Gawker now tell us it might be “gone.” Hmmm…..

I’m not saying there’s no video. Rob Ford has certainly acted like he’s guilty of something. But it seems amazing to me that in this era in which all types of tapes and documents spontaneously get loose, this one is no where to be found. Also, the idea of the mayor of Toronto smoking crack with a bunch of Somalis while they film him falls into the “extraordinary claims require extraordinary proof” category. The still photo is interesting, but I’ve seen many compromising photos of mayors, who are routinely snapped with all sorts of random people who they may find out later are unsavory characters. I can’t imagine this sort of media feeding frenzy over say, similar allegations against Michael Bloomberg or Rahm Emanuel.

The Toronto Globe and Mail is a serious newspaper that’s roughly Canada’s New York Times. Though they didn’t break the video story, they did follow-up with a rather tabloidesque article about the history of Rob Ford’s family with drugs. Ford’s brother Doug, the focus of the piece, is on the city council himself, so is a legitimate investigative target so to speak, but the piece also digs into other family members.

Not only is the Globe and Mail digging up dirt on Rob Ford’s family, this piece did it entirely with anonymous sources. They claimed to talk to no fewer than ten people who called Doug Ford a drug-dealer, but curiously none of them were willing to talk on the record. That didn’t stop the Globe and Mail from reporting:

Ten people who grew up with Doug Ford – a group that includes two former hashish suppliers, three street-level drug dealers and a number of casual users of hash – have described in a series of interviews how for several years Mr. Ford was a go-to dealer of hash. These sources had varying degrees of knowledge of his activities: Some said they purchased hash directly from him, some said they supplied him, while others said they observed him handling large quantities of the drug.

The events they described took place years ago, but as mayor, Rob Ford has surrounded himself with people from his past. Most recently he hired someone for his office whose long history with the Fords, the sources said, includes selling hashish with the mayor’s brother.

…

There’s nothing on the public record that The Globe has accessed that shows Doug Ford has ever been criminally charged for illegal drug possession or trafficking. But some of the sources said that, in the affluent pocket of Etobicoke where the Fords grew up, he was someone who sold not only to users and street-level dealers, but to dealers one rung higher than those on the street. His tenure as a dealer, many of the sources say, lasted about seven years until 1986, the year he turned 22. “That was his heyday,” said “Robert,” one of the former drug dealers who agreed to an interview on the condition he not be identified by name.

Upon being approached, the sources declined to speak if identified, saying they feared the consequences of outing themselves as former users and sellers of illegal drugs.

The Globe also tried to contact retired police officers who investigated drugs in the area at the time. One said he had no recollection of encountering the Fords.

The article is full of innuendo about the Ford’s such as the idea that Rob Ford recently hired a drug dealing associate of Doug’s from the old days (highlighted above), along with curious mentions and links to beatings, killings, and white supremacy/KKK. (Rob Ford is a white supremacist who likes to smoke crack with Somalis???) It’s capped off by having various anonymous sources given pseudonyms so that they appear to be actual people on the record. As this excerpt notes, the police record and police contacts don’t back up the story, which just adds to the general notion of dubiosity and suggests this is a very exaggerated piece that tries to throw things to the wall to see what sticks.

All it all, given the extreme reactions to financial dealings that, even if they were proven, would have been a non-issue almost anywhere else, along with a firestorm of allegations about smoking crack and so much more with no actual proof, the Rob Ford affair has thus far generated much more smoke than fire.

Rob Ford is the price Toronto is paying for the foolishness of the provincial government and the failure of an urban candidate to offer a compelling vision for the entire amalgamated city. But it strikes me very much that a group of old Toronto city partisans, who are incensed a guy like Ford had the temerity to win an election, are determined to use any means necessary to correct what they see is that injustice. But just as with what happened in America and its politics in the wake of the Clinton impeachment, Canada may come to rue the day a group of its citizens decided to try to overturn an election by destroying the winner rather than waiting for their next opportunity at the ballot box.

Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile, where this piece originally appeared.

Photo by Wiki Commons user MTLskyline.

Market Surge Confirms Preference for Homeowning

Joel Kotkin — Mon, 03 Jun 2013 01:38:35 -0400

Ever since the housing bubble burst in 2007, retro-urbanists, such as Richard Florida, have taken aim at homeownership itself, and its "long-privileged place" at the center of the U.S. economy. If anything, he suggested, the government would be better off encouraging "renting, not buying."

Similar thinking has gained currency with some high-rise (or multi-unit) builders, speculators and Wall Street financiers, who would profit by keeping Americans permanent renters, with encouragement from former Morgan Stanley financial analyst Oliver Chang, who predicted we were headed toward a "rentership society."

Some support comes from research suggesting that higher ownership rates actually create unemployment. A study by the proausterity Peterson Institute for International Economics, cited recently both by Florida and the New York Times' Floyd Norris, lays out an econometric case against homeownership.

The authors justified their findings by pointing to larger unemployment-rate changes from 1950-2010 in states, mostly in the South, such as Alabama, Georgia, Mississippi, South Carolina and West Virginia, compared with California, North Dakota, Oregon, Washington and Wisconsin. They then noted that, in the states with the larger unemployment rate increases, homeownership had increased more. Hence, the connection between higher homeownership and higher unemployment rates.

This analysis is staggeringly ahistorical. It fails to correct for the massive labor market changes that have occurred in the Southern states, as the agricultural and domestic employment common in 1950 has largely disappeared. The analysis begins with a year in which three of the states cited to prove that lower homeownership is associated with lower unemployment had unusually high unemployment in 1950 (California was No. 1, Oregon, No. 4, and Washington, No. 6); unemployment in these three West Coast states averaged nearly double that of the Southern examples.

Another ahistorical implication is that that the South experienced a huge increase in homeownership since 1950, as economically disadvantaged African-Americans began to buy their residences. An analysis by demographer Wendell Cox indicates that, even as labor markets were being radically altered, per capita incomes in relatively underdeveloped Alabama, Georgia, Mississippi, South Carolina and West Virginia rose during 1950-2010 at more than double the rate experienced in California, North Dakota, Oregon, Washington and Wisconsin (more than 140 percent, adjusted for inflation, compared with approximately 65 percent).

The Peterson thesis is also undermined by a close examination of county homeownership and unemployment rates, which finds, generally, that large counties with higher rates of homeownership have lower unemployment rates. For example, among the nation's approximately 260 counties with more than 250,000 residents, those with homeownership rates above 70 percent have average unemployment rates of 8.1 percent. Among the counties with homeownership rates below 50 percent, unemployment rates average 9.6 percent. This is exactly the opposite relationship that would be expected from the Peterson Institute research.

Finally, many large urban counties with the lowest homeownership rates – Los Angeles, Kings County (Brooklyn), New York County (Manhattan), Queens, Cook County (Chicago) and Philadelphia – also suffer well-above-average levels of unemployment and high levels of poverty. In contrast, suburban counties with high homeownership rates, like Nassau County, N.Y., Chester County (in the Philadelphia area), or Fairfax County, Va., boast considerably lower unemployment than their urban neighbors, and higher per-capita incomes. Most of the cities with the highest ownership rates, like Fort Worth and Austin, Texas, Indianapolis, Denver and Columbus, Ohio, all did very well in the most recent Forbes "Best Cities for Jobs" study.

It is also alleged that countries with high ownership rates do worse than those with lower ones. And to be sure, troubled countries like Portugal and Spain have high levels of homeownership, while Germany, Sweden and Denmark have somewhat lower ones. Yet, many successful countries – Taiwan, Singapore, Norway, Australia, Canada and Israel – actually do quite well with higher ownership rates than in America.

Dream that refuses to die.

From a historic perspective, the present U.S. homeownership rate, 65.4 percent, does not represent a structural decline from the middle 2000s, as is often argued, but remains consistent with the virtual equilibrium achieved over the past half century. As recently as 1940, only 40 percent of Americans owned their homes, a share that reached 60 percent by 1960s. Since then, it has remained fairly stable. The modest decline from the middle 2000s was from an artificially high level that resulted from the virtual suspension of mortgage credit standards – egged on by Wall Street and government agencies – which was followed by a deep recession and a weak recovery.

The housing bust changed the market, but not because of some fundamental shift in buyer preferences, as is sometimes alleged. Indeed, the recent spike in home sales confirms that Americans continue to aspire to homeownership. Research at the Woodrow Wilson Center indicated that 91 percent of respondents identified it as essential to the American Dream, and most favored steering government policy to spur homeownership.

Much has been written about how the under-30 population is either living at home or cannot buy a house. Yet, surveys by generational chroniclers Morley Winograd and Mike Hais found that a full 82 percent of adult millennials surveyed said it was "important" to own their own home, which rose to 90 percent among married millennials. Another survey, this one by TD Bank, found that 84 percent of renters ages 18-34 intend to purchase a home in the future.

Homeownership achieves almost cultish status among immigrants, who account for some 40 percent of all new owner households over the past decade. Among Asians who entered the country before 1974, a remarkable 81 percent own their home, while Latino homeownership is projected to rise to 61 percent by 2020.

Societal advantages of owning

Critics of homeownership often point out that renters have far more flexibility to move; that's true and important particularly for people in their 20s. But, as people age, get married and, especially, have children, they seek to become involved in their communities on a more permanent basis. Pundits and economists often fail to recognize that people are more than simply profit-maximization machines ready to cross the country for an income increase of a few thousand dollars; they also seek out friends, stable neighbors, familial comfort, community and privacy.

Homeowners reap the financial gains of any appreciation in the value of their property, so they tend to spend more time and money maintaining their residence, which also contributes to the overall quality of the surrounding community. The right to pass property to an heir or to another person also provides motivation for proper maintenance.

Given their stake, homeowners participate in elections much more frequently than renters. One study found that 77 percent of homeowners had, at some point, voted in local elections, compared with 52 percent of renters. The study also found a greater awareness of the political process among homeowners. About 38 percent of homeowners knew the name of their local school board representative, compared with 20 percent of renters. The study also showed a higher incidence of church attendance among homeowners.

People who own their homes also tend to volunteer more in their community, notes the National Association of Realtors. This applies to the owners of both expensive and modest properties. One 2011 Georgetown study suggests that homeownership increases volunteering hours by 22 percent.

Perhaps the largest social benefits relate to children. Owners remain in their homes longer than do renters, providing a degree of stability valuable for children. Research published by Habitat for Humanity identifies a number of other advantages for children associated with homeownership versus renting, ranging from higher academic achievement, fewer behavioral problems and lower incidence of teenage pregnancy.

'A share in their land'

Even before the American Revolution, the notion of ownership, usually of a farmstead, was a critical lure. Even after the yeoman utopia of the early 19th century faded, Americans continued to yearn for their own homes, something that led them in two great waves, first in the 1920s and again in the 1950s and 1960s, to the suburban periphery.

In contrast to today's progressives, many traditional liberals embraced the old American ideal of dispersed land ownership. "A nation of homeowners," President Franklin D. Roosevelt believed, "of people who own a real share in their land, is unconquerable."

Legislation under Roosevelt and successor presidents supported this ideal. More than a response to the market, governments embraced homeownership as a positive societal and economic good for the majority of Americans. This policy – brilliantly exploited by entrepreneurs – worked for both people and the economy. Almost half of suburban housing, notes historian Alan Wolfe, depended on some form of federal financing.

Road to serfdom?

The suggestion that we need to abandon what the New York Times denounces as the "dogma on owning a home" has grown deeply entrenched among retro-urbanists. Rather than facilitate the broad dispersion of property ownership across economic classes, the new orthodoxy suggests we would be better off as a nation of renters, living cheek-to-jowl in apartments. This works to the advantage of the Wall Streeters and other investors, who profit from our paying off their mortgages rather than our own. The assault on homeownership also pleases some advocates of austerity, such as Pete Peterson, who would like to eliminate the mortgage interest deduction as a way to raise revenue at the expense of the middle class.

Turning against homeownership undermines the very promise of American life and the culture of independence critical to our identity as a people. Housing accounts for about two-thirds of a family's wealth and the vast majority of the property owned by middle- and working-class households. The house represents for the middle class, devastated by the weak recovery, both a chance to make a long-term investment as well as a place to raise a family; a Wall Street portfolio, for all but the very affluent, who can afford the best advice, provides no reasonable alternative.

We have to consider what kind society we wish to have. The nomadic model now in fashion suggests Americans should simply move from place to place, untethered to any one spot, seeking personal fulfillment and the best financial deal for themselves. Such a model fits with current planning dogma and facilitates a source of profit for some, but undermines the dispersion of property that can sustain our society, and our families, over the long run.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the Orange County Register.

Home illustration by Bigstock.
Update: The Pete Peterson referred to here is not the Pete Peterson running for office in California.

Religious Freedom Lures Many to U.S. from Asia

Joel Kotkin — Mon, 20 May 2013 01:38:08 -0400

It's been two decades since California Gov. Pete Wilson used grainy ads of undocumented immigrants – "They keep coming" – as an effective means of stoking fear of newcomers and assuring his re-election. Yet, increasingly America's immigration realities are moving far beyond the mojado paradigm of the 1990s in ways that challenges the stereotypes of both conservatives and progressives.

This discussion of the undocumented, and about the relative benefits of accepting millions of poor, often modestly educated newcomers, has sharply divided the Left and Right. But this often-polarized debate largely has missed the changing nature of immigration and its potential long-term impact on our national future.

The biggest shift in immigration lies in primary motivation. Traditionally, most immigrants came primarily for economic reasons. Poor people in Mexican or Central American villages saw a better life in the United States and, unlikely to do so legally, chose to make the crossing, anyway. Legal immigrants from further away, including many with educations, such as from Asia, the Middle East and Africa, also came to reap financial opportunities that their still-developing economies could not provide.

Today these economic motivations are losing their primacy, both for documented and undocumented workers. Many of the economies from which immigrants once fled – including Mexico, Korea, India, Taiwan and China – are now arguably doing better than the U.S. economy. A machinist from Monterrey, a technician from Taipei, or a biologist from Bangalore can find ample, and even greater, opportunities at home than here.

Most important have been changes with Mexico, from where most undocumented immigrants have come. A survey from the Pew Hispanic Center notes that, during 2005-10, about 1.4 million Mexicans immigrated to the U.S. – exactly the same number of Mexican immigrants and their U.S.-born children who moved back, or were deported, home.

This trend is likely to continue. Brighter economic prospects south of the border, a rapidly declining birth rate and lack of good jobs for the modestly skilled do much to explain the plunge in Mexican immigration. The "back to Mexico" numbers could even grow since many Mexicans immigrants here – roughly two-thirds of legal residents – have chosen not to become American citizens.

'Lifestyle' migration

Now we see a shift both in the primary motivation and geography of immigration. Increasingly, immigrants are coming less out of economic distress and more as a result of what may be called "lifestyle" migration. This may be particularly applicable to the largest source of immigration, Asia. Opportunity, notes a recent Pew study, remains a key lure but freedom to express political views and a better environment to raise children was cited by more than three in five as reasons for coming here.

Asia has become much richer in the past few decades, but many people find conditions there less than satisfactory. In a place like Beijing, Shanghai and Singapore, even the highest levels of wealth and "success" cannot buy you the comfort and privacy of single-family home. In China, even a billionaire can't breathe clean air, drink the tap water or easily access quality public education.

Recent immigrants to places like such as Irvine or Eastvale, a newly minted suburb just outside Ontario, California, will tell you that the "quality of life" here is simply unavailable in their home country, at virtually any price. This quality-of-life migration is particularly evident in California, where twice as many new immigrants now come from Asia than from Latin America. Even the New York Times admits they are not coming here to duplicate the high-density environment of Mumbai or Shanghai, but to indulge "the new suburban dream."

Religious freedom

Of course, some immigrants still come for venerable reasons, such as the freedom to worship. Christians, who make up some 42 percent of Asian-Americans, face surveillance and repression, particularly, in China, where religion is tightly regulated, and dissent from the party line can land adherents in jail. Over half of Asian immigrants, Pew notes, cite freedom of religion as a key advantage of living in America. New faith-based migration could also be seen soon among Christians fleeing increasingly Islamic regimes in Egypt, Syria and other Middle Eastern countries.

And then there's the related issue of legality. In China, in particular, property ownership is never secure from state confiscation. This, in part, accounts for a rise in immigrant investors, not only to the United States but to such bastions of legality as Canada and Australia. Lack of faith in the long-term political stability is also driving a growing group of Chinese professionals to emigrate.

"Chinese come from a country where it isn't infrequent that government takes land for redevelopment with little concerns for the American notions of due process," Realtor Tommy Bozarjian of Aslan Properties told Chapman University researcher Grace Kim. "Vietnamese come from a country where they had to gather what little they had into pillow cases and makeshift bags" before boarding helicopters and boats in efforts to escape the communist regime.

Overall, this new immigration is far more promising than that portrayed in Pete Wilson's grainy videos. An influx of young families, seeking to establish a better way of life for the children, represent something of an elixir for a sagging economy. Asians, the fastest-growing group, outperform other racial groups across a broad array of measurements, notably education and income.

Higher entrepreneurship rates among immigrants are providing a bright spot in an otherwise-sagging start-up economy. The immigrant share of all new businesses, notes the Kauffman Foundation, more than doubled, from 13.4 percent in 1996 to 29.5 percent in 2010.

But not all the positives pertain at the higher end. Clearly, the country will also need some lower-skilled workers, particularly in agriculture, who work in circumstances few Americans would embrace. More important still, immigrants may be necessary for addressing a looming shortage of skilled technicians, such as process engineers, machinists, mold-makers, which are, in part, a result of our still-neglected high school vocational training programs, trade schools and junior colleges.

Less-in-demand jobs

At the same time, there may be less need to encourage the migration of workers in hospitality, retail and other entry-level industries when many native-born and naturalized residents still struggle for employment. College graduates, in particular, are increasingly turning to these professions since the number of opportunities for all but the most credentialed, and gifted, seem rather limited. More than 43 percent of recent graduates now working, according to a recent report by the Heldrich Center for Workforce Development, are at jobs that don't require a college education.

This dynamic may even be applied to some higher-skilled professions. Silicon Valley executives, such as Facebook's Mark Zuckerberg, insist we need to import large quantities of tech workers. He's even backed a faux conservative group to push his agenda within the GOP. Yet, there is growing evidence, as recently revealed in a study by left-of-center Economic Policy Institute, that the country's much-ballyhooed shortage of STEM (science-technology-engineering-mathematics-related) workers may be vastly exaggerated.

If EPI's analysis is accurate, importing vast numbers of young code-writers – what in the Silicon Valley has been sometimes referred to as "techno-coolies" – may result in lowering the price of labor and allow the Silicon Valley elite to not address issues such as inflated housing costs that keep older, American-born workers out of the Valley's labor pool.

These are the kind of issues Washington should focus on as politicians look to reshape our immigration laws. So, too, are policies that encourage the immigration of families likely to stay and put down roots long-term here in the United States. As an immigrant country, we do not want to duplicate the dependence on transitory workers associated with places like Dubai, Singapore and large parts of Europe.

Overall, the newer wave of "lifestyle" immigrants seems a net plus, but legislators should take care to recognize that even the most obvious windfall could have negative unintended impacts on Americans and our economy. Rather than simply a politically motivated rush to judgment, or replaying the immigration wars of the past, we need to pay more attention to the emerging realities of this new wave and devise a policy that best serves the long-term interests of the nation in the decades ahead.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the Orange County Register.

Photo "asian american" by flicker user centinel.

America’s New Oligarchs—Fwd.us and Silicon Valley’s Shady 1 Percenters

Joel Kotkin — Tue, 14 May 2013 10:42:52 -0400

When Steve Jobs died in October 2011, crowds of mourners gathered outside of Apple stores, leaving impromptu memorials to the fallen businessman. Many in Occupy Wall Street, then in full bloom, stopped to mourn the .001 percenter worth $7 billion, who didn’t believe in charity and whose company had more cash in hand than the U.S. Treasury while doing everything in its power to avoid paying taxes.

A new, and potentially dominant, ruling class is rising. Today’s tech moguls don’t employ many Americans, they don’t pay very much in taxes or tend to share much of their wealth, and they live in a separate world that few of us could ever hope to enter. But while spending millions bending the political process to pad their bottom lines, they’ve remained far more popular than past plutocrats, with 72 percent of Americans expressing positive feelings for the industry, compared to 30 percent for banking and 20 percent for oil and gas.

Outsource Manufacturing, Import Engineers

Perversely, the small number of jobs—mostly clustered in Silicon Valley—created by tech companies has helped its moguls avoid public scrutiny. Google employs 50,000, Facebook 4,600, and Twitter less than 1,000 domestic workers. In contrast, GM employs 200,000, Ford 164,000, and Exxon over 100,000. Put another way, Google, with a market cap of $215 billion, is about five times larger than GM yet has just one fourth as many workers.

This is an equation that defines inequality: more and more wealth concentrated in fewer hands and benefiting fewer workers.

While Facebook and Twitter have little role in the material economy, Apple, which continues to collect the bulk of its profit from physical goods—computers, iPads, iPhones and so on—has outsourced nearly all of its manufacturing to foreign companies like Foxconn that employ workers, often in appalling conditions, in China and elsewhere. About 700,000 people work on Apple’s physical products for subcontractors, according to the New York Times, but almost none of them are in the U.S. “The jobs aren’t coming back,” Jobs bluntly told President Obama at a 2011 dinner in Silicon Valley.

Not so much anti-union as post-union, the tech elite has avoided issues with labor by having so few laborers who could be organized. Andrew Carnegie and Henry Ford exploited workers in Pittsburgh and Detroit, and had to deal with the political consequences; the risks are much less if the exploited are in Chengdu and Guangzhou.

"There doesn't seem to be a role" for unions in this new economy, explained Internet entrepreneur and venture capitalist Marc Andreessen, because people are "marketing themselves and their skills.” He didn’t mention what people without skills in demand at tech companies might do.

But Americans with those skills shouldn’t rest easy, either. These same companies are always looking to cut down their domestic labor costs. Mark Zuckerberg, in particular, is pouring money into a new advocacy group, Fwd.us, with a board consisting of big-name Valley luminaries, to push “comprehensive immigration reform” (read: letting Facebook bring in a cheaper labor force). In a remarkably cynical move, Fwd.us has separate left- and right-leaning subgroups to prod politicians across the political spectrum to sign on to the bill that would pad the company’s bottom line.

Ostensibly, the increase in visas for high-skilled computer workers is a needed response to the critical shortage of such workers here—a notion that has been repeatedly dismissed, including in a recent report from the Obama-aligned Economic Policy Institute, which found that the country is producing 50 percent more IT professionals each year than are being employed in the field. The real appeal of the H1B visas for “guest workers”—who already take between a third and half of all new IT jobs in the States—is that they are usually paid less than their pricy American counterparts, and are less likely to jump ship since they need to remain employed to stay in the country. Facebook’s lobbyists, reports the Washington Post, have pressed lawmakers to remove a requirement from the bill that companies make a “good faith” effort to hire Americans first.

The Valley of the Oligarchs

Even as market caps rise, the number of Americans collecting any cut of that new wealth has scarcely moved. Since 2008, while IPOs have generated hundreds of billions of dollars of paper worth, Silicon Valley added just 30,000 new tech–related jobs—leaving the region with 40,000 fewer jobs than in 2001, when decades of rapid job growth came to an end.

The good jobs that are being created are also heavily clustered in one region, the west side of the San Francisco peninsula—a distinct and geographically constrained zone of privilege. The area boasts both formidable technical talent and, more important still, roughly one third of the nation’s venture funds along with the world’s most sophisticated network of tech-savvy investment banks, publicists, and attorneys.

But little of the Valley’s wealth reaches surrounding communities. Just across the bridge to the East Bay are high crime rates and an economy that’s lost about 60,000 jobs since 2001 with few signs of recovery. Inland, in the central Valley, double-digit unemployment is the norm and local governments are cutting police and other core services and even trying to declare bankruptcy.

“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’s Schmidt boasted to the San Francisco Chroniclein 2011. “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 a daily discussion, because their issues are not our daily reality.”

Inside the bubble zone, centered around the bucolic university town of Palo Alto, employees at firms like Facebook and Google enjoy gourmet meals, child-care services, even complimentary house-cleaning. With all these largely male, well-paid geeks around, there’s even a burgeoning sex industry, with rates upwards of $500 an hour.

Those at top of the tech elite live very well, occupying some of the most expensive and attractive real estate in the country. They travel in style: Google maintains a fleet of private jets at San Jose airport, making enough of a racket to become a nuisance to their working-class neighbors. They have even proposed an $85 million flight center, called Blue City Holdings, to manage airplanes belonging to Google’s founders, Larry Page and Sergey Brin, and its executive chairman, Eric Schmidt. Like the Russian oligarchs, currently making a run on Tuscany’s castles and resorts, the Valley elite have embraced conspicuous consumption, albeit dressed up in California casual. In San Francisco, San Mateo, and Santa Clara counties combined, luxury vehicles accounted for nearly 21 percent of new car registrations from April 2011 to March 2012, more than twice the national average. Home prices in places like Palo Alto and the fashionable precincts of San Francisco go for well over a million—and routinely trigger all-cash bidding wars.

We’re the best thing happening in America,” one tech entrepreneur told the Los Angeles Times. Even a reporter for the New York Times, usually worshipful in its Valley coverage, described the spending as “obscene.” An industry party he attended included a 600-pound tiger in a cage and a monkey that posed for Instagram photos.

But past the conspicuous consumption, the most outstanding characteristic of the new oligarchs may be how quickly they have made their fortunes—and how much of the vast wealth they’ve held on to, rather than paid out to shareholders or in taxes. Ten of the world’s 29 billionaires under 40 come from the tech sector, with four from Facebook and two from Google. The rest of the list is mostly inheritors and Russian oligarchs.

Tech oligarchs control portions of their companies that would turn oilmen or auto executives green with envy. The largest single stockholder at Exxon, CEO and chairman Rex Tillerson, controls .04 percent of its stock. No direct shareholder owns as much as 1 percent of GM or Ford Motors. In contrast, Mark Zuckerberg’s 29.3 percent stake in Facebook is worth $9.8 billion. Sergey Brin, Larry Page and Eric Schmidt control roughly two thirds of the voting stock in Google. Brin and Page are worth over $20 billion each. Larry Ellison, the founder of Oracle and the third richest man in America, owns just under 23 percent of his company, worth $41 billion. Bill Gates, who’s semi-retired from Microsoft, is worth a cool $66 billion and still controls 7 percent of his firm.

The concentration of such vast wealth in so few hands mirrors the market dominance of some of the companies generating it. Google and Apple provide almost 90 percent of the operating systems for smart phones. Over half of Americans and Canadians and 60 percent of Europeans use Facebook. Those numbers dwarf the market share of the auto Big Five—GM, Ford, Chrysler, Toyota, and Honda—none of whom control much more than a fifth of the U.S. market. Even the oil-and-gas business, associated with oligopoly from the days of John Rockefeller, is more competitive; the world’s top 10 oil companies collectively account for just 40 percent of the world’s production.

Greater Representation with Minimal Taxation

Despite this vast wealth, and their newfound interest in lobbying Washington, the tech firms are notorious for paying as little as possible to the taxman. Facebook paid no taxes last year, while making a profit of over $1 billion. Apple, “a pioneer in tactics to avoid taxes,”has kept much of its cash hoard abroad, out of reach of Uncle Sam. Microsoft has staved off nearly $7 billion in tax payments since 2009 by using loopholes to shift profits offshore, according to a recent Senate panel report.

And now, these 1 percenters—who invested heavily in Obama—are looking to help shape the “public good” in Washington and, as with Fwd.us, what they’re selling as good for us all is what aligns with their interests.

There’s been a huge surge of Valley investment in Washington lobbying, not just on immigration but also on issues effecting national, industrial, and science policy. Facebook’s lobbying budget grew from $351,000 in all of 2010 to $2.45 million in just the first quarter of this year. Google spent a record $18 million last year. In the process, they have hired plenty of professional Washington parasites to make their case; exactly the kind of people Valley denizens used to demean.

The oligarchs believe their control of the information network itself gives them a potential influence greater than more conventional lobbies. The prospectus for Fwd.us—headed up by one of Zuckerberg’s old Harvard roommates—suggests tech should become “one of the most powerful political forces,” noting “we control massive distribution channels, both as companies and individuals.”

One traditional way the wealthy attain influence is purchasing their own news and media companies. Facebook billionaire and former Obama tech guru Chris Hughes (who owes his fortune to having been another of Zuckerberg’s college roommates) has already started on this road by buying the New Republic. (His husband, perhaps not incidentally, is running for the New York State Assembly.) Leaving old-media legacy purchases aside, Yahoo is now the most-read news site in the U.S., with over 100 million monthly viewers, and the Valleyites are also moving into the culture business with both Google-owned YouTube and Netflix getting into the entertainment-content business.

Great wealth, and high status, particularly at a young age, often persuades people that they know best about the future and how we should all be governed. Twitter founder Jack Dorsey, a 37-year-old resident of San Francisco, recently announced on 60 Minutes that he’d like to be mayor—of New York, a city he’s never lived in.

Expect more of this kind of hubris from the new oligarchs. Some cities, ranging from Seattle, where Amazon is leading the charge, to Las Vegas and even Detroit now are counting on tech giants to expand or restore their damaged central cores.

But if those oligarchs do come, they will have little interest in retaining or expanding blue-collar jobs in construction or manufacturing, which they see as passé; the housing they build and even the public amenities they invest in will be for their own employees and other members of the “creative class.” The best the masses can hope for are jobs cutting hair, mowing grass, and painting the toenails of the oligarchs and their favored minions. You won’t see much emphasis, either, on basic skills training and community colleges, which are critical to auto manufacturers, oil refiners, and other older businesses and can provide opportunity for upward mobility for middle- and working-class youth.

Yet these limitations will not circumscribe the ambitions of the new oligarchs, who see their triumph over cyberspace as a prelude to a power grab in the real world, a proposition they’ve tested over the last three presidential cycles. “Politics for me is the most obvious area [to be disrupted by the Web],” suggests former Facebook president and Napster founder Sean Parker.

If You're the Customer, You're the Product

Perhaps an even bigger danger stems from the ability of “the sovereigns of cyberspace” to collect and market our most intimate details. Moving beyond the construction of platforms for communication, the oligarchs trade on the value of the personal information of the individuals using their technology, with little regard for social expectations about privacy, or even laws meant to protect it. Google has already been caught bypassing Apple’s privacy controls on phones and computers, and handing the data over to advertisers. The Huffington Post has constructed a long list of the firm’s privacy violations. Apple is being hauled in front of the courts for its own alleged violations while Consumer Reports recently detailed Facebook’s pervasive privacy breaches—culling information from users as detailed as health conditions, details an insurer could use against you, when one is going out of town (convenient for burglars), as well as information pertaining to everything from sexual orientation to religious affiliation to ethnic identity.

As Google’s Eric Schmidt put it: "We know where you are. We know where you've been. We can more or less know what you're thinking about."

But while Facebook and Google have been repeatedly cited both in the United States and Europe for violating users’ privacy, the punishments have been puny compared to the money they’ve made by snatching first and accepting a slap on the wrist later.

It's no surprise then that Silicon Valley firms have been prominent in trying to quell bills addressing Internet privacy, both in Europe and closer to home. Washington is where big firms have always gone to change the rules to protect their own prerogatives and pull the ladder up on smaller competitors. Like previous oligarchical interests, the Valley, predictably, has become a regular and crucial fundraising stop for Obama and other Democrats crafting those rules.

Al Gore—who owes much of his Romney-sized fortune to lucrative positions on the board of Apple and as a senior adviser to Google, as well as to energy investments heavily backed by federal funds—has emerged as the symbol of the lucrative, if shady, intersection of those two worlds.

Green is an easy sell in the Valley. If California electricity is too unreliable or expensive, firms will just shift their power-consuming server farms to places with cheap electricity, such as the Pacific Northwest or the Great Plains. Middle-class employees who, in part due to green “smart growth” policies, can no longer afford to live remotely close to Palo Alto or in San Francisco, can be shifted either abroad or to more affordable locales such as Salt Lake City, Phoenix, or Austin, Texas. Meanwhile, with supply restricted, the prices on houses owned by the oligarchs and their favored employees continue to rise into the stratosphere.

What we have then is something at once familiar and new: the rise of a new ruling class, arrogant and self-assured, with a growing interest in shaping how we are governed and how we live. Former oligarchs controlled railway freight, energy prices, agricultural markets, and other vital resources to the detriment of other sectors of the economy, individuals, and families. Only grassroots opposition stopped, or at least limited, their depredations.

But today’s new autocrats seek not only market control but the right to sell access to our most private details, and employ that technology to elect candidates who will do their bidding. Their claque in the media may allow them to market their ascendency as “progressive” and even liberating, but the new world being ushered into existence by the new oligarchs promises to be neither of those things.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the The Daily Beast.

Official White House Photo by Pete Souza.

Why Gentrification?

Aaron M. Renn — Tue, 14 May 2013 01:38:09 -0400

The mostly commonly chosen means, or at least attempted means, of revitalizing central cities that have fallen on hard times is gentrification. Gentrification is the process of replacing the poor population of a neighborhood with the affluent and reorienting the district along upscale lines. This has seen enormous success in large swaths of New York and Chicago, but even traditionally struggling cities like Cleveland have seen pockets of this type of development downtown.

What makes gentrification so attractive as a redevelopment strategy? There are many reasons.

The first and most easily understandable is that is works, at least in a given geographic area. There’s a proven track record and model for redeveloping cities on an upscale basis. It may do very little for the rest of the city, but it does work for those who live, work, and, perhaps most importantly, invest in them.

But perhaps the best question is: are there any other success models? It’s hard to point to many other successful models for redeveloping urban cores. The only alternative, and one that cities generally pursue in parallel, is attracting immigrants who seek out and revitalize out of fashion districts, often in outlying precincts of the city or the inner ring suburbs. Where there are successful working class districts in cities today, most of them are older neighborhoods that have hung on, not new ones birthed out of decline.

In a modern America where income equality and class divisions are a huge problem, it’s definitely mission critical for America to restart the middle class jobs engine and renew our metro regions as engines of upward mobility. But that’s easy to say and hard to do, at least from an inner city perspective.

The manufacturing jobs that previously supported a middle and comfortable working class lifestyle are gone and likely are not coming back. Public sector employment, traditionally another way to a middle class life in the city, is under extreme pressure due to fiscal mismanagement. Key services like the public schools remain intractably broken in most places. Segregation remains entrenched. What is the basis on which a middle or working class life will be re-established in the city? It isn’t clear. Untold billions pumped into various Great Society type programs accomplished little that was sustainable. Indeed, many programs like urban renewal, yesterday’s urban planning conventional wisdom, turned out to be disasters for cities. Community organizing may have launched the career of President Obama, but it’s not clear how it has helped Chicago’s marginalized communities. Given the paucity of models other than gentrification, it’s easy to see the attraction.

Other reasons also drive cities toward gentrification. Clearly with a fiscal crisis, attracting more high income taxpayers (even where local taxes are predominantly on property) is clearly attractive. And the existing affluent residents need to have some assurance that they are being taken seriously by the city and aren’t just being used as ATM machines for redistribution.

The change in the macro-economy that led to the income gap, including national policies that favor finance and technology rather than traditional manufacturing and energy type sectors, plays a huge role as well. These elite industries require a highly educated, highly skilled workforce and they are subject to clustering economics. Theories like “Creative Class” that describe this phenomenon suggest that this is a fickle group of people who seek out a gentrified neighborhood consisting largely of people like themselves. This has been glommed onto by the elite themselves – the various politicians, the wealthy, business executives, cultural leaders, academics and others. They hold power in cities and use this to justify further investment in gentrification related programs – that is, their own class interest – although these programs do little for anyone who is not elite.

Lastly, changes in the composition of local elites favor the publicly subsidized luxury real estate projects aimed at gentrification. In previous generations the CEOs of local operating businesses like banks and utilities were major power players. These tended to be fragmented industries and predominantly local in focus, so the overall civic health – in everything from education to infrastructure – was critical to the health of their core business. The interests of the community and CEOs were aligned.

Today, most large-scale, and even many smaller, businesses have been nationalized or globalized, and the local power players are increasingly people like lawyers, real estate developers, and construction magnates who make money by the hour or project. The shift from locally focused operating businesses to national or global operating businesses, with remaining locally owned and focused businesses tending to be of the transactional type, produced a local elite who prefers doing deals than building broad community success. Unsurprisingly, they’ve doubled down on high end luxury developments, often subsidized by the government.

Lastly, once the ball gets rolling on gentrification, market forces can sustain it provided that the overall policy set remains favorable to elite type development. And having a lot of high end, swanky type development generates buzz for a city, something more prosaic, and more broadly based, working class success never does.

Given the lack of proven alternative models and the alignment of multiple incentives behind it, there’s no surprise gentrification is the almost universal aspirational choice for cities in redevelopment. But the gentrification model in most places is simply too narrow to move the needle or produce any benefits down the economic ladder. It is imperative that urban thinkers and leaders try harder to find models that provide more inclusive and broadly-based and socially sustainable benefits.

Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile.

Photo by Dom Dada.

The Cleveland Miracle That Should Never Have Been

Richey Piiparinen — Wed, 08 May 2013 16:45:54 -0400

“[T]he most obvious, ubiquitous, important realities are often the ones that are the hardest to see and talk about.” Writer David Foster Wallace

The story of the three Cleveland women kidnapped over 10 years ago and recently found alive in a house on the city’s Near West Side has captivated the national imagination. There is the miracle aspect from the fact that such situations rarely end this way. There is the hero aspect that is Charles Ramsey, the raw dog, uber-Cleveland man that tells it like it is (e.g., “Bro, I knew something was wrong when a little, pretty white girl ran into a black man's arms.”) But that is not what this essay is about. Rather, it is about our failure as a city, particularly a failure of priority.

On Monday, May 6th, the feeling in the air as one of the girls-turned-women emerged into her freedom was torn. There was elation at the miracle that the supposed dead were alive, yet there was also a collective unease that comes with the reality that Cleveland can be a violent city, and that there was a need for a miracle in the first place.

Worse, the fact that the decades-long captivity occurred in the shadows of Cleveland’s revitalization success story, Ohio City—the city’s artisan district and home of the West Side Market—well, let’s just say it was enough to give many in this city pause. Including myself.

Specifically, the week’s events left me acutely aware that Cleveland is still comprised of remnants of a post-industrial community. For it is a city still reeling. Still struggling. Still failing the most vulnerable. And it is a city still culpable, if only through fostering a continued failure in leadership that refuses to build the city the right way.

Yes, like many cities, there are pockets of reinvestment, such as the gentrifying neighborhoods of Detroit Shoreway, Downtown, University Circle, Ohio City, and Tremont. And reinvestment in inner-city neighborhoods is needed, as concentrated poverty and segregation is no path forward. But Cleveland is not going to consume and play its way out of this. Re-treading the entertainment district into whatever urban revitalization fad appears to be going on in any given decade will only lead to what we always got: a perpetual state of “revitalization”. What will work is a real reconstitution of Cleveland’s neighborhoods; that is, a reconstitution of people, and not simply of place. To that end, think of the city as a net. No amount of investment will stick until we rethread our community fabric, which involves growing the people that comprise a community in the first place.

How does a city do this? Well, the first step is to not get too cute, and to do the obvious realities right.. No amount of beautification projects will save a post-industrial city. A city needs to focus on the basics, as you develop a city like you grow a child. Here, the psychologist Albert Maslow’s hierarchy of needs can help.

To wit, city leaders must prioritize physiological needs: eradicate food deserts, curb environmental threats, etc. Then, focus on safety. Not just manning safety force slots, but making sure those protecting us respect their duty. There are big questions about this in Cleveland. Also, shelter. Real local housing policies are needed, as are innovative educational and workforce development strategies. If you want to get creative, you can even leverage and strategize various needs together, like utilizing a glut of vacant storefronts into small business/entrepreneurial initiatives. Next, encourage social and cultural attachment so the benefits of community capital can be had. Don’t worry. If persons can breathe, eat, work, feel safe, and go home, they are likely to do this on their own. In fact that is the beauty of a hierarchy approach, as investment at the bottom turns into a self-fulfilling process up top. And then the icing on the cake: actualizing individuals, perhaps through fostering creative capital programs. That said, creatively classifying a city is doing it backwards if you haven’t built your city from the foundation up. Said Maslow: “A first-rate soup is more creative than a second-rate painting.”

And while this makes intuitive sense to regular Clevelanders, it is confusing for the local leaders, if only through the advice of revitalization experts. For instance, in an article addressing concerns over whether or not Detroit’s investment should go to a bike path initiative, the author references an expert as to why the answer is “yes”:

As Peter Kageyama argues in his book For the Love of Cities, “In the city making ‘hierarchy of needs’ we see most communities focused on bottom-line, core issues of making cities functional and safe. There still are many communities that struggle to even deliver functional and safe but that is not the problem. The problem is when communities only focus on the functional and safe and never raise their aspirations.”…Ultimately, places that do not engage us emotionally do not feel worth caring about.

Clicking on the link above to Kageyama’s page, the expert details his thoughts and his audience:

I focus primarily on American cities though the ideas are relevant to any place. I pay particular attention to some of our most challenged places such as Detroit, Cleveland and New Orleans as they have become hot beds of social innovation as government and the “official” city-makers have struggled to reconcile shrinking budgets and diminished capabilities. Into this vacuum has flowed a new breed of city-maker – usually young, independent, unofficial, creative, rule breaking and entrepreneurial. These are the new “frontiersmen” and “frontierswomen” who are rebuilding these cities from the ground up.

There are a few problems here. First, while attachment to place is important, the logic is a bit flawed. A person insecure in various aspects of livability, like food and shelter, is not going to have their concerns addressed via an emotional connection to a given place. I am not saying developing place is bad. I am only saying such an approach is akin investing in nice drapes as your house is on fire. Put the fire out. Protect your people. Grow your people. After all, according to economic developer Jim Russell, people develop, not places.

Second, local leaders are elected for a reason. To lead. And to serve and protect. “Frontiersmen” or Frontierswomen” are not going to protect the preyed upon—notwithstanding Charles Ramsey, though I doubt that is what Kageyama had in mind.

No doubt, the events in Cleveland have shaken the city—yet another tear in an already torn city. And while the local and national news media is branding the escape of three women and one child as the “Miracle in Cleveland”, it wasn’t. At least not for us. We failed these young women. We failed the women before them. I hope this serves as our wake-up call. We will not play our way out of this. And if we continue to try, there will always be shame in the shadows of our revitalization.

Richey Piiparinen is a writer and policy researcher based in Cleveland. He is co-editor of Rust Belt Chic: The Cleveland Anthology. Read more from him at his blog and at Rust Belt Chic.

Top photo Courtesy of WOIO/AP

Can Public Banks Help Fix Local Finance?

Jason Sibert — Wed, 08 May 2013 01:38:31 -0400

Are public banks the answer for the recession-induced decline in municipal revenue and other ills that plague our cities? It’s a solution being discussed in more than one American city.

Mike Krauss, a founder of the Public Banking Institute and a chairmen of the Pennsylvania Pubic Bank Project, both non-profits that promote public banking, said this month an ad hoc committee made up of Philadelphia City Council members and civic groups started working on the adoption of language for a public bank in the city. He also said the measure is being adopted out of a need for “affordable and sustainable credit.” The PPBP is leading the effort for public banking in the city.

The recession’s impact on municipal taxes and anger at Wall Street were factors in the push for a public bank. Krauss described the losses to Philadelphia’s school district, street, police and fire departments as “phenomenal.”

Krauss mentioned North Dakota’s public bank, founded in 1919 to promote agriculture, commerce and industry in the state, as a role model for cities. The North Dakota bank arose in reaction to farmers’ anger over the predatory practices of East Coast and Minneapolis banks. The bank’s revenues come from the state’s general revenue fund. Krauss cites the Bank of North Dakota’s 2.9 billion portfolio in a state with a population of roughly 600,000 as an example of its success. Philadelphia has a population of approximately 1.5 million. Krauss also said a public bank would be a job creator for cities and again used the BND as an example, as it produced a job for every 100,000 dollars it loaned.

Like North Dakota’s bank, the proposed public bank in Philadelphia wouldn’t be a commercial bank that offers checking and savings accounts. It would lend money for city projects and also partner with local commercial banks on loans. There are also efforts underway for public banks in San Francisco and Boston, according to Krauss.

Public Banking Institute Chairmen Marc Armstrong said that over a trillion dollars in revenue from states and municipalities are deposited in big Wall Street banks every year. Armstrong also said many of the deposits are used to provide loans for transnational corporations that don’t invest in their states and cities. Public banks can provide loans as low as one percent interest, and Wall Street banks consider their existence as a threat, said Armstrong. When it comes to taxation and other issues that confront cities, a public bank could be used as a weapon against the rent-seeking – meaning using social and political circumstances to extract more money out of the public – activities by financiers. The public bank would instead invest in higher education, automotive and banking industries and as a tool for productive economic enterprises and individuals. This weapon could in turn create more vibrant activities in urban economies.

Krauss admitted the possibilities for the use of revenue generated by a public bank are endless, and he said investment in the school district, infrastructure and public safety would be positives. However, other job creating services and projects could be a reality – free wi-fi, the construction of affordable rental housing for retired people and low income residents, rent-to-own home ownership (or condo) programs, research and development to support public science, scientific innovation and high technology industries, childcare facilities, higher education for city residents, public media, new parks, free or reduced utilities for businesses and individuals, and also investments in energy efficiency, recycling, renewable energy and car sharing.

The positive impacts of the above mentioned investments go beyond public banking, as it is the starting point for a more vibrant urban economy, education system and ecology. With a new source of revenue, business taxes could be slashed to promote business formation in public banking inclined cities, and more businesses within city limits would mean even more revenue.

Similar to slashing taxes for business, free or reduced costs on wi-fi and utilities would also help local businesses and individuals by reducing their overhead costs and in turn create more jobs, as more money could be spent in the form of investment by businesses themselves and in increased individual purchasing power that works its way back into local businesses.

Recycling would have a similar effect, as it’s cheaper for a city to recycle, if the program is a well-run, than to pay for waste collection, land filling and incineration. By reducing the costs of waste, cities could again reduce business taxes and once again create more business formation, and at the same time reduce greenhouse gas emissions. Recycling reduces pollution not only by reducing the waste sent to landfills, but it also reduces the need for cutting down more trees and the inputs needed to manufacture a product.

Urban and non-urban citizens all create waste and for that reason recycling is a bigger job creator than renewable energy which cannot produce all of our energy due to intermittency and also the cost, as it’s still more expensive than traditional forms. Despite these drawbacks, new revenue could be used to create jobs in solar energy by installing solar panels on public buildings – school district offices, schools, and city hall. Also worth thinking about is the possibility of constructing biogas plants that break down organic waste – which can come from the vast amount of sewage a city creates – to create another, perhaps more reliable form of renewable energy.

The additional revenue produced by the use of public banking and increased business formation could also be used to lift the burden of rent-seeking higher education institutions by offering lower interest loans to help young people attain a higher education, affordable rent and affordable home or condo ownership without acquiring crushing debt. Cities could offer a few years of free vocational, art, culinary and business education. The media is full of stories of urban residents burdened with student loan debt which benefits universities, colleges and the government and decreases the amount of money circulating into local businesses. Also, cities would benefit from this investment by creating a new generation of productive workers, chefs and artists and the businesses that are created along with them.

Low interest loans could also be offered to local real estate interest for rent-to-own condo and house programs and affordable apartments could be constructed with low-interest loan portfolios. Of course, landlords would have to abide by low-rent policies if they are to take advantage of the policies, blunting the rent raising effects of gentrification while maintaining its’ positive side.

Cities could also put public dollars behind a new innovation in transportation – car sharing - which has been pioneered by Zipcar. Cities could help expand the company’s business by offering it low tax rates and subsides to locate within their borders; those arguing they would wasteful should take a second look at what’s spent on sports stadiums. Or maybe cities could building their own car sharing industry with local business leaders. The expansion of car sharing would mean less impact on the infrastructure and reduce the amount spent on infrastructure. It would also reduce traffic congestion and make it possible for residents of surrounding suburbs to enjoy the city’s attractions.

Cities can and should be hubs for creative people and immigrants, as they see life in almost-dead neighborhoods and create gentrifying enterprises such as restaurants, cafes, music venues, art galleries, artisan manufacturing, coffee roasting, small boutique retailers and all sorts of internet and technology businesses. However, cities can’t and shouldn’t lose focus on what sustains critical functions such as public safety, infrastructure and education – revenue. The public bank offers an opportunity for cities to invest in themselves, not the profit portfolios of Wall Street.

Jason Sibert is a freelance writer who has lived in the St. Louis Metro Area since the late 90's. He worked for the Suburban Journals for a decade and his work has appeared in various publications over the last four years.

Photo by David Shankbone.