This post is about what good-paying jobs focused economic development should look like. About what it takes to grow, retain and attract high-wage jobs. It draws lessons Michigan can learn about winning in the 21st Century from our posts on Austin, Denver and Northern Virginia.

Clearly economic development is just one component of state and regional economic policy and programming. It, almost certainly, is less important to economic well being than the quality of the human capital development system from birth through college. Having said that the design of economic development programming matters. So let’s look at, as Virginia puts it, what “a new model of economic development for the 21st century” should look like.

Winning in the 21st Century Lesson 1: The primary goal of economic policy should be rising income for all Michiganders. In Michigan’s strong pre-pandemic economy 43 percent of households––most with a working adult––could not pay for basic necessities. When more than four in ten Michigan families are not succeeding, our state is not succeeding.

Winning in the 21st Century Lesson 2: First and foremost Michigan needs to learn that place attracts talent and that talent=economic growth. So that placemaking––creating a place where people want to live and work––is key to economic well being.

In Triumph of the City Harvard’s Edward Glaeser writes: “The bottom-up nature of urban innovation suggests that the best economic development strategy may be to attract smart people and get out of their way.”

Attracting smart people and getting out of their way isn’t the way Michigan and its regions do economic development today. The focus, almost exclusively, is on attracting business investment through some combination of being a low-cost place, providing investment-specific incentives, and business assistance programming.

And yet the evidence is on Glaeser’s side. The fact is that the single best predictor of regional and state prosperity is the proportion of adults with a four-year degree or more. Concentrated talent is what attracts high-wage employers. Talent is also entrepreneurial, so where it is concentrated are the places with the most high-wage business start-ups. The new economic reality is that the path to prosperity for states and regions is human-capital driven. That the asset that matters most to employers––particularly high-wage employers––is talent.

Winning in the 21st Century Lesson 3: The core of being an economic development competitive state and region is a region’s human capital based assets, not what is included in the offer for a specific business investment opportunity.

Northern Virginia’s winning Amazon HQ2 proposal offered cash incentives up to $800 million. Far less than the reported $2 billion offered by metro Grand Rapids and a reported $4 billion offered by metro Detroit, including Windsor.

What they did offer Amazon, which matters far more to high-wage employers, is a region with talent concentration; being welcoming to all, and a quality of place that is an attractive place for talent to live and work. Working on creating these characteristics, on an ongoing basis, is what matters most to growing, retaining and attracting good-paying jobs.

Winning in the 21st Century Lesson 4: Winning in the 21st century is public-investment led. Creating places where people want to live and work is driven by quality basic services, infrastructure and amenities.

Randy Thelen the new President and CEO of the Right Place, metro Grand Rapids’ economic development agency, understands the essential role placemaking plays in winning in the 21st Century. Thelen comes to the Right Place from the Downtown Denver Partnership. In a MiBiz interview he describes Denver’s success this way:

During previous recessions, Thelen said Denver “doubled down, invested in itself,” which allowed it to “accelerate out of recession and bypass that competition.” He’s leaving a “hyper growth market” in the Mile High City that’s attracted investments particularly from large tech firms such as Google, Twitter and Facebook.

“Virtually any tech company you can imagine has put up a sizable outpost in Denver,” Thelen said. “It’s a healthy reminder that the product of a region matters, and talent and placemaking drives business decisions.

Thelen’s “doubled down, invested in itself” is as true in Austin and Northern Virginia as it is in Denver. Yes, those public investments must be paid for which inevitably means higher taxes. But those taxes pay for services and amenities that are both important to improving the quality of life of current residents and are a vital to future economic growth, particularly growth of high-wage jobs.

Winning in the 21st Century Lesson 5: Welcoming to all is a core characteristic of high-prosperity regions. That is because talent is both diverse and mobile. If a place is not welcoming, it cannot retain and attract talent. People will not live and work in a community that isn’t welcoming. That means providing everyone with basic civil rights and treats everyone the same no matter where they are born, their sexual orientation, race, religion or ethnic background.

For Michigan and its regions to be competitive with leading-edge communities like Austin, Denver and Northern Virginia Michigan needs to completely redesign its economic development strategy and practice. What we think of as state and regional economic development now is the icing on the cake, not the foundation of building a high-wage economy. If Michigan is going to be competitive in retaining, attracting and creating high-paid 21st Century jobs it is going to require making public investments in creating places where talent wants to live and work. The economic policy priority for a high-prosperity Michigan is to prepare, retain and attract talent.

What Michigan needs, first and foremost, is a human capital centered economic strategy not a business creation, retention, attraction centered economic strategy. The economic development foundation now is high-quality education systems that prepares the next generation for the economy they are going to work in and communities where mobile talent wants to live and work. The latter being what economic development programming should be focused on.

We know how to create welcoming communities. We know how to pay for and provide high-quality basic services, infrastructure and amenities. We know how to create high-density, high-amenity, transit-rich neighborhoods. What is missing is an understanding that as then New York City Mayor Michael Bloomberg put it “talent attracts capital far more effectively and consistently than capital attracts talent”. That the path to prosperity for communities is human-capital driven.

It is also clear that the desirable mix of infrastructure, basic services and amenities differ from region to region. What makes small towns and rural communities attractive places to live and work are different than what makes big metros and their big cities attractive places to live and work. So Michigan’s diverse regions need the resources and flexibility to develop and implement their own strategies to retain and attract talent. It’s an essential ingredient to their future economic success.

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David Oshinsky in his book Bellevue quotes Thomas Jefferson’s reaction to the 1793 yellow fever epidemic in Philadelphia, then the nation’s capitol:

By November the streets were deserted, and more than 10 percent of the city’s fifty thousand residents were dead. Most of Congress was gone, along with President George Washington and Secretary of State Thomas Jefferson. For Jefferson, a defender of rural values, the epidemic was a mixed blessing, with a powerful lesson attached. “The yellow fever will discourage the growth of great cities in our nation,” he confidently wrote a friend, “& I view great cities as pestilential to the morals, the health and the liberties of man.”

Obviously Jefferson was wrong. As has been all the other myriad predictors of the coming demise of high-density big cities throughout American history. There are two main reasons why.

First concentrated talent working face to face significantly boosts productivity. And second, people––particularly young professionals––want to live in high-density, high-amenity urban neighborhoods where you do not have to own a car. It is almost certain the current pandemic will not alter those realities long term any more than the 18th Century yellow fever epidemic did.

This post is focused on the productivity advantage of high-density big cities. In a future post we will look at talent wanting to live in those cities.

Evidence of the enduring value of big cities is present today in the midst of our current pandemic. In an article entitled Facebook Bets Big on Future of N.Y.C., and Offices, With New Lease, the New York Times reported:

Facebook on Monday (August 3) agreed to lease all the office space in the mammoth 107-year-old James A. Farley Building in Midtown Manhattan, cementing New York City as a growing global technology hub and reaffirming a major corporation’s commitment to an office-centric urban culture despite the pandemic.

With the 730,000-square-foot lease, Facebook has acquired more than 2.2 million square feet of office space in the city for thousands of employees in less than a year, all of it on Manhattan’s West Side between Pennsylvania Station and the Hudson River.

… “Facebook first joined New York’s vibrant business and tech community in 2007,” the company’s spokeswoman, Jamila Reeves, said. “Since that time, we’ve continuously grown and expanded our presence throughout the city. The Farley Building will further anchor our New York footprint and create a dedicated hub for our tech and engineering teams.”

Facebook decision to go big on high-density big city offices is consistent with the lessons employers learned the last time they tried to let employees work from home. In a New York Times article entitled The Long, Unhappy History of Working From Home, David Streitfeld writes:

Companies large and small have been trying for decades to make working from home work. As long ago as 1985, the mainstream media was using phrases like “the growing telecommuting movement.” Peter Drucker, the management guru, declared in 1989 that “commuting to office work is obsolete.”

Telecommuting was a technology-driven innovation that seemed to offer benefits to both employees and executives. The former could eliminate ever-lengthening commutes and work the hours that suited them best. Management would save on high-priced real estate and could hire applicants who lived far from the office, deepening the talent pool.

And yet many of the ventures were eventually downsized or abandoned. Apart from IBM, companies that publicly pulled back on telecommuting over the past decade include Aetna, Best Buy, Bank of America, Yahoo, AT&T and Reddit. Remote employees often felt marginalized, which made them less loyal. Creativity, innovation and serendipity seemed to suffer.

Marissa Mayer, the chief executive of Yahoo, created a furor when she forced employees back into offices in 2013. “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people and impromptu team meetings,” a company memo explained.

Tech companies proceeded to spend billions on ever more lavish campuses that employees need never leave. Facebook announced plans in 2018 for what were essentially dormitories. Amazon redeveloped an entire Seattle neighborhood. When Patrick Pichette, the former chief financial officer at Google, was asked, “How many people telecommute at Google?” he said he liked to answer, “As few as possible.”

Edward Glaeser in Triumph of the City explains the enduring value of concentrated talent working face to face this way:

Within the United States, workers in metropolitan areas with big cities earn 30 percent more than workers who aren’t in metropolitan areas. These high wages offset the higher costs of living, but that doesn’t changes that fact that the high wages reflect high productivity.

The only reason why companies put up with the high labor costs and land costs of being in a city is that the city creates productivity advantages that offset those costs. Americans who live in metropolitan areas with more than a million residents are 50 percent more productive than American who live in smaller metropolitan areas.

… Cities enable the collaboration that makes humanity shine most brightly. Because humans learn so much from other humans, we learn more when there are more people around us. Urban density creates a constant flow of new information that comes from observing others‘ success and failures. … Cities make it easier to watch and listen and learn.

Since Glaeser wrote Triumph of the City in 2011, the big city/concentrated talent advantage has grown. Glaeser poses and then answers the essential question about why cities can be the engines of growth despite being the most expensive places to live and do business:

Once you can learn from Wikipedia in Anchorage why pay New York prices? But a few decades of high technology can’t trump millions of years of evolution. Connecting in cyber-space will never be the same as sharing a meal or smile or kiss. … The most important communications still take place in person, and electronic access is no substitute for being in the geographic center of an intellectual movement. The declining cost of connecting over the long distances has only increased the returns of clustering close together. … The death of distance may have been hell on the goods producers in Detroit, who lost out to Japanese competitors, but it has been heaven for the idea producers of New York and San Francisco and Los Angeles who have made billions on innovations in technology and entertainment and finance.

As Facebook’s new Farley Building lease demonstrates, employers understand that lesson. That the way to build and maintain culture and to enhance innovation and productivity is through face to face interaction of concentrated and diverse talent. And those talent concentrations are most prevalent in high-density big cities.

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Across the country, in rural areas/small towns––except for those with lots of high priced energy related commodities––incomes and college attainment are low and populations, by and large, are stagnant, if not, declining. And the proportion of income coming from government transfer payments is high.

Our work at Michigan Future has been primarily about what is happening to the economy rather than what to do about it. One of the lessons we have learned is states and communities can’t beat big trends.

If the economy needs more knowledge workers and less factory workers wishing it weren’t so doesn’t change anything. If knowledge-based employers and college educated workers prefer big metros and young college educated workers prefer central cities in those big metros wishing it weren’t so also doesn’t change anything.

So places that do well are going to be those that align with rather than resist new realities. I know that is pretty depressing for those communities which aren’t well positioned to take advantage of those trends. And I know that it would be great if we had some effective strategies for how “out of favor” communities could respond, but we haven’t found any examples of rural places that have developed those strategies. Although to be honest we haven’t spent a lot of time studying small towns.

The fact that work can be done anyplace––as it becomes increasingly digital––doesn’t mean it will be. This is what the futurists so far have gotten wrong. Talent is concentrating in big metros, in large part, because of place preferences. Particularly young professionals who in large numbers are looking for walkable, amenity rich, lots of transit neighborhoods. And where they are concentrating knowledge-based employers are following. There also is economic theory that dense talent is more productive. (For details check out Edward Glaeser’s Triumph of the City.) That the advantages of face-to-face communications is still more value added than digital communication. Both of which give big metros a big advantage in an increasingly knowledge-driven economy.

Not good news for rural/small town Michigan. For the foreseeable future rural/small town Michigan is almost certain to have predominantly goods-producing (manufacturing, construction, farming, commercial fishing, forestry and mining) economies plus tourism. As we document in our latest report this means low employment growth and low wages. And as you would expect, that leads to struggles in retaining and attracting residents, particularly young talent.

So for Michigan having talent-rich big metros––which means metro Detroit and metro Grand Rapids––matters most to the state’s future prosperity. Both of those regions are laggards at the moment. We need to fix that. And we know how to. Places like metro Pittsburgh provide a road map.

We can’t identify a path to a prosperous 21st Century Michigan without an even more prosperous metro Detroit and metro Grand Rapids. The advantage for the rest of the state is more indirect. But it does benefit the entire state. It creates more prosperous consumers for things like vacations and higher priced/locally grown foods for example. High paid knowledge workers today play the same role that high paid factory workers played in helping northern Michigan in the 20th Century. (And I would argue that high-prosperity metro Chicago today plays in the along Lake Michigan communities.)

We are always open to new ideas. Because we haven’t found any, doesn’t mean there aren’t examples of rural/small town America that are creating vibrant non-energy-based (we know that works if prices are high) economies. Please feel free to share with us any models for northern Michigan you know of.

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So for Michigan to return to prosperity it is essential that our big metros – most importantly Detroit (including Ann Arbor), but also Grand Rapids and Lansing – need to be talent magnets. Places where college educated adults choose to live and work. And this needs to be a priority for state and regional policymakers and economic developers.

For those interested in both the future of our economy and the importance of central cities I highly recommend three new books:

Triumph of the City by Edward Glaeser. If you choose to only read one book about the economy, this is the book I recommend. It simply presents the best analysis of what drives economic growth in a flattening world and the growing competitive edge that makes big metropolitan regions with large talent concentrations (you need both) the places where that growth is concentrating. And it is not just economic growth that do better in central cities. The book’s subtitle is: How our greatest invention makes us richer, smarter, greener, healthier and happier. The great invention he is referring to is, of course, cities. The book concludes with a terrific chapter on what policy makers need to do to reverse the long standing anti-urban, anti-density bias that harms our cities, our environment (yes dense cities are the greenest places) and our economy.

Alan Ehrenhalt, former executive editor of Governing magazine, has written a terrific book about the growing demand of the affluent to live in central cities entitled The Great Inversion. Most of us in Michigan continue to view cities as, at best, relics of the past. Places where maybe the grandparents of folks like us use to live, but now the places where only the poor and low educated immigrants live. Think again! As Ehrenhalt demonstrates a demographic inversion in taking place across America. Central cities are increasingly the place where the affluent want to live, particularly college educated Millennials. The book describes the features that make central cities attractive – largely walkable urbanism with access to light rail transit – to the affluent and what cities across the country – driven in many places by business leadership – are doing to meet that demand. Lessons we are having trouble learning here in Michigan.

Finally, Enrico Moretti’s The New Geography of Jobs. Consistent with Glaeser, Moretti makes a compelling case that the driver of economic growth is innovation, which he calls the new engine of American prosperity. The data he presents makes clear that innovation jobs are concentrating in what he  calls brain centers – largely big metros with high talent concentrations and mid sized metros with research universities. And that in those brain centers everyone’s wages go up. Certainly knowledge workers, but also non-college educated workers. For example, in metro Flint the average wage for high school graduates is a little less than $29,000, for those in the same occupations in Lincoln, Nebraska the average wage is a little less than $42,000. The main difference between the two regions? College attainment: 38% in Lincoln, 12% in Flint. So one has a knowledge-driven and therefore growing and high wage economy, the other doesn’t. Maybe most importantly, he provides a compelling answer to the conundrum as he puts it of “Companies appear to locate in absolutely the worst places: they pick very expensive places – the Bostons, San Franciscos and New Yorks of the world.” Moretti explains why concentrated talent which produces productivity and creativity is what characterizes the economic geographic winners, rather than low labor, real estate and tax costs.

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Talk about contrary to conventional wisdom! The best economic development strategy may be to attract smart people and get out of their way sure isn’t how state and local policy makers and economic development officials approach the task of growing the Michigan economy. Their focus, almost exclusively, is on attracting business investment. And yet the evidence is on Glaeser’s side.

The fact is that the single best predictor of regional and state prosperity is the proportion of adults with a four year degree or more. Cities – the theme of Glaeser’s book –  are the driving force of economic growth in large part because increasingly college educated adults are concentrating in big metropolitan areas anchored by vibrant central cities.

One city – and region – that gets that attracting talent is central to prosperity and is reaping its benefits is Denver. Tami Door, CEO of the Downtown Denver Partnership, in a must read Denver Post guest column, writes:

Door writes that the Denver has made its priorities “amenities, transportation infrastructure, educated population, (downtown) residential growth, innovation and entrepreneurship, and emerging green economy — that make the urban core of the Mile High City an attractive place for these younger workers.”

And metro Denver has repeated big benefits from making attracting mobile young talent a priority. In 2009 (still the latest available data), metro Denver among the 55 metros in the country with a population of one million or more is 9th in per capita income and, maybe most importantly, 7th in private sector employment earnings per capita.

The lessons Denver, and as I have written about previously  New York City, Chicago and Pittsburgh, have learned that creating vibrant central cities that attract mobile young talent is essential to economic growth is a lesson that we have not, but need to, learn here. The simple fact is without concentrated talent you cannot recreate a high prosperity Michigan.

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Skills that come from schools and cities. Think about how different that is from the our normal approach to economic development. Most policy makers and practitioners would think you are from Mars if you suggested that schools and cities are the levers that matter most for economic success. They almost exclusively focus on retaining and attracting businesses.

Glaeser’s terrific new book Triumph of the City details the reasons why cities are the drivers of economic growth and prosperity.

For centuries (think Thomas Jefferson) – despite all the evidence to the contrary – Americans have viewed central cities as a problem. The place where “they” live that drag down the country. The reality is as Glaeser writes: The ideas that emerge in cities eventually spread beyond their borders and enrich the rest of the world. Massachusetts rises or falls with Boston just as Maharashtra rises and falls with Mumbai. You read that right: cities are the engines of economic growth.

When it comes to economic development Glaeser concludes: The bottom up nature of urban innovation suggests that the best economic development policy may be to attract smart people and get out of the way. You read that right too: the foundation of economic development should be creating central cities where smart people want to live and work. Because where they concentrate you get the ideas, innovation and entrepreneurship that drives the economy across the planet.

The facts are: Within the United States, workers in metropolitan areas with big cities earn 30 percent more than workers who aren’t in metropolitan areas. These high wages offset the higher costs of living, but that doesn’t changes that fact that the high wages reflect high productivity. The only reason why companies put up with the high labor costs and land costs of being in a city is that the city creates productivity advantages that offset those costs. Americans who live in metropolitan areas with more than a million residents are 50 percent more productive than American who live in smaller metropolitan areas.

The main reason big metros anchored by vibrant central cities are so much more productive is concentrated talent. As Glaeser writes: Cities enable the collaboration that makes humanity shine most brightly. Because humans learn so much from other humans, we learn more when there are more people around us. Urban density creates a constant flow of new information that comes from observing others‘ success and failures.  … Cities make it easier to watch and listen and learn.

And the big city/concentrated talent advantage is growing in a flattening world. Glaeser poses and then answers the essential question about why cities can be the engines of growth despite being the most expensive places to live and do business:

Once you can learn from Wikipedia in Anchorage why pay New York prices? But a few decades of high technology can’t trump millions of years of evolution. Connecting in cyber-space will never be the same as sharing a meal or smile or kiss. … The most important communications still take place in person, and electronic access is no substitute for being in the geographic center of an intellectual movement. The declining cost of connecting over the long distances has only increased the returns of clustering close together. … The death of distance may have been hell on the goods producers in Detroit, who lost out to Japanese competitors, but it has been heaven for the idea producers of New York and San Francisco and Los Angeles who have made billions on innovations in technology and entertainment and finance.

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