A Creative Comeback in the Big Easy

After years of stagnation following Hurricane Katrina, New Orleans is building itself a new economy.
by | January 2014
New Orleans’ Warehouse District, also known as the Arts District, attracts artists, writers and entrepreneurs.
New Orleans’ Warehouse District, also known as the Arts District, attracts artists, writers and entrepreneurs. David Kidd

These days it seems nearly every major city has given itself a high-tech nickname that starts with the word “silicon” and ends with a piece of geography. Austin, Texas, has Silicon Hills; Portland, Ore., has Silicon Forest; Chicago lays claim to Silicon Prairie; and New York likes to call a slice of Manhattan Silicon Alley.

But of all the silicon places, the oddest in more than one way is Silicon Bayou, the name New Orleans has bestowed on its technology sector. It’s odd because bayous and technology don’t seem to go together; nor, for that matter, do New Orleans and innovation of almost any kind.

If you think that Silicon Bayou is an oxymoron, though, you haven’t been paying attention to what has been going on in New Orleans lately. In the eight years since Hurricane Katrina wiped out 1,800 lives and 90,000 jobs, the local economy has been attracting high-tech startups and other business innovations on a scale that no one could have predicted in the immediate aftermath of the storm, or in the years before it struck.

Not all of New Orleans’ job creation numbers are great, but when it comes to entrepreneurs and technology something is clearly happening. For the three years ending in 2012, according to the Greater New Orleans Community Data Center, the number of people starting businesses in New Orleans was 427 per 100,000 residents. The national figure is 320. The number of tech-sector jobs grew 19 percent between 2005 and 2012, six times the national average. Forbes has singled out New Orleans as the No. 1 metropolitan area in the country for IT job growth. National Journal magazine reported in 2013 that “it all has the feel of Silicon Valley in the mid-1990s.”

“The economy really has taken a new turn,” says Allison Plyer, executive director of the Community Data Center. “It’s a phenomenal thing, and it’s not just the recovery from Katrina.”

Some will find all this to be a bit of a stretch. It’s happening in a place that still ranks near the bottom among U.S. cities in most socioeconomic categories. The city’s violent crime rate in 2011 was 105 percent above the national average. The average wage in the metro area is 6 percent below the national median. The poverty rate hasn’t gone down since 1999, and the percentage of native-born residents with bachelor’s degrees hasn’t gone up. The disparity between black and white earnings throughout the metropolitan area is 50 percent, well above the national average. As in most large U.S. cities, the numbers tell the story of a place that’s thriving and stagnating all at once.

The thriving New Orleans will be on full display in March, when the city hosts its seventh annual Entrepreneur Week, an event designed to showcase innovative new companies and projects, and to raise money for investments that can help these ventures succeed.

Entrepreneur Week is run by an organization called Idea Village, a year-round source of assistance to startups. Idea Village goes back to the pre-Katrina days, but it’s grown enormously since the storm, and has now helped as many as 3,000 budding innovators. Entrepreneur Week this year will have roughly 10 times as many participants as it did the first time, with 5,000 people expected to attend.

The climax of Entrepreneur Week is a “pitch competition” in which businesses in search of investment submit their ideas to a panel of judges from companies like Goldman Sachs and McKinsey. Some of the contestants work with teams of business school students who come to New Orleans on spring break. Idea Village describes the event as the largest crowdsourced investor pitch in the nation. The Atlantic has called it a “startup Mardi Gras.”

At this point, the most intriguing question isn’t whether New Orleans is building itself a new economy. That’s clearly happening. The intriguing question is what has brought it about.

Paradoxical as it may seem, there’s no doubt that Hurricane Katrina is in large part responsible. An enormous amount of relief and rebuilding money has poured into New Orleans from both federal and state government.

The New Orleans area has received vast infusions of aid from Washington since the storm. But the State of Louisiana has been even more generous. It has financed a local production and payroll tax credit that provides 35 percent tax reductions for payroll expenditures for state residents, and 25 percent in subsidies for digital media spending. There’s a 30 percent state tax credit for movie production that occurs in Louisiana, which is now the No. 3 state in the country for making films, behind only California and New York. Not all the subsidies have gone directly to New Orleans, but it has been the prime beneficiary. Movie related jobs make up a significant share of the increase in high-tech employment.

But the Katrina aftermath changed New Orleans in less tangible but equally important ways. It has generated a return home for well-educated young entrepreneurs and other professionals who grew up there, moved away to pursue careers, and then committed to participate in the local recovery. “There were people who came specifically to help New Orleans restore itself,” says Plyer. “Entrepreneurs have the choice to go anywhere they want to go. They chose to come back here.”

The returnees and their counterparts who never left combined to create a spirit of economic renewal that had been nearly absent for decades before the storm. “The key to reversing the decline was entrepreneurship,” says Tim Williamson, CEO of Idea Village. “The day after Katrina, everyone became an entrepreneur, had to start over in some way. We’ve benefited from an influx of talent and capital.”

Culture is crucial here. Even in the depths of its pre-Katrina stagnation, New Orleans was an exciting city and a magnet for tourists, conventioneers and other visitors from around the world. It had assets in food, music and architecture that scarcely any other American city, rich or poor, could come close to matching. Many of the hundreds of thousands of people who moved away in the last half of the 20th century left because they saw limited career opportunities, not because they lacked an emotional attachment to the city itself. Once the jobs started to come back, the personality of New Orleans began to attract returnees and newcomers alike, in a virtuous cycle.

Just before Katrina struck, the population of New Orleans was about 450,000. After the storm, it sank as low as 209,000. By September 2013, it had reached an estimated 369,000. Of the city’s residents in 2013, Census numbers indicated that 8 percent had been in town less than a year, and half of those had arrived from out of state. Before Katrina, the comparable number of same-year newcomers was 3 percent, which is also the national average.

The newcomers are central to any New Orleans comeback story. They are also, to a large extent, members of the “creative class” that geographer Richard Florida has been writing about, amid great controversy, for the past decade.

Florida’s argument in his 2003 book, The Rise of the Creative Class, was that cities and metro areas thrive by attracting youthful members of the U.S. post-industrial elite—artists, writers, tech engineers, business-startup promoters of all kinds. These people, he posited, are drawn to the cultural amenities that older cities possess, and to the opportunity to live in a dense urban environment, often in neighborhoods that had been blighted only a few years before. Many of the creative class members were gay, and Florida appeared to be suggesting that the way for a struggling community to give itself a boost was to become conspicuously friendly to gay newcomers.

As a description of life in the revitalized precincts of Boston, Chicago, New York, Seattle and other successful American cities of the early 2000s, Florida’s argument was practically unassailable. The hip neighborhoods of all these cities were hotbeds of creative class in-migration. Where the theory ran into trouble was in its implication to some that a smaller city without significant pre-existing cultural amenities could virtually will its way to creative class prosperity by advertising itself as a haven for artists, entrepreneurs and gays. The number of success stories along these lines was depressingly few, and the entire creative class theory began to fall into disfavor.

Now comes New Orleans. Over the past few years, it has begun to revive itself precisely according to the Florida model. After long decades of economic stagnation, it suffered a devastating blow in the form of Hurricane Katrina. But it continued to possess the cultural amenities that made it potentially attractive to the creative class. As the city’s economy slowly revived, helped by financial aid from outside sources, more and more members of the creative class came to take advantage of it. Now New Orleans is growing again, and key sectors of its economy are benefiting from the creativity-based mini-boom.

To say this is not to deny that vast stretches of the metro area are still mired in the stagnation that afflicted them for decades before Katrina, and that they will likely remain stuck there for years to come. It is merely to point out that in the right place at the right time and under the right circumstances, the creative class model can work.

Alan Ehrenhalt
Alan Ehrenhalt  |  Contributing Editor
aehrenhalt@governing.com  | 

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