Economic Development

Mysteries of Urban Momentum

Thirty years ago, Minneapolis and St. Paul were hot. Now they're not. Local leaders are trying to figure out why.
by | April 2002

More than a quarter-century on, you can still find people in Minneapolis and St. Paul who are haunted by a magazine cover. It was the cover of Time, August 13, 1973, and it showed a buoyant, flannel- shirted Governor Wendell Anderson hoisting a northern pike with a lake in the background and the headline, "The Good Life in Minnesota."

It was a heady moment. The article inside not only talked about how exceedingly nice Minnesotans were, it praised their politics--"an honorable profession in this state," as one contented local put it. Time commented on Minnesota's forward-looking state and local policies and lauded its beautiful surroundings, excellent schools and thriving economy. For a place unaccustomed to being thought of as fashionable-- despite the reflected glory from its exposure as the locale for "The Mary Tyler Moore Show"--all of this suggested that Minnesota in general and the Twin Cities in particular had vaulted to the first rank of compelling American places.

Yet when the article comes up in conversation these days, which it does with surprising frequency, there's a certain wistfulness attached. It's not that Minneapolis and St. Paul have fallen apart economically--statistics show nothing of the sort. Nor is it that Minnesota's environment isn't quite as pristine as it used to be or that the much-mythologized "Minnesota Nice" has been strained by frenetic rush-hour traffic, although both these things are true. It's that among the leadership and the citizenry of the Twin Cities, there is a feeling that the promise once put on national display has somehow gone unfulfilled. The last time one of the big newsmagazines devoted a cover to celebrating a place Americans ought to consider living, it was Newsweek's salute to Seattle, with a photo of journalist Michael Kinsley in a yellow rain slicker and the tagline "Swimming to Seattle: Everybody Else Is Moving There. Should You?"

Communities do not live by magazine covers, but in the Twin Cities, signs of unease are everywhere. Last November, R.T. Rybak, a former journalist and downtown development official, unseated Minneapolis Mayor Sharon Sayles Belton with a campaign that kicked off with the catch-phrase, "I was born in a great city and don't want to die in a mediocre one." Along with Rybak, voters also swept in seven insurgent candidates for the 13-member city council, including two from the Green Party. Meanwhile, the Minneapolis Star Tribune has been running a series of articles and editorials under the rubric "Compete or Retreat," essentially accusing the region of allowing smug self- confidence to erode its competitiveness.

You could argue that this is just so much navel-gazing in a community that ought to know better. After all, no one is about to rank Minneapolis or St. Paul with Detroit, Camden or East St. Louis. Between 1972 and 2000, per-capita income, population, non-farm employment and college education attainment all grew in the metro area at a rate faster than the national average. The area ranked 22nd in per-capita income in 1972; in 1999, it was 13th. These are hardly the deteriorating vital signs of a region left behind by the national economy.

Yet the Minnesota Malaise is real, and it is most pronounced among some of the region's most prominent citizens. A group of them, including University of Minnesota President Mark Yudof, Qwest Communications vice president John Stanoch and Hennepin County commissioner Randy Johnson, are spearheading the Great North Alliance, an organization aimed at addressing the complex question of whether the Twin Cities have lost their competitive edge. "We started asking people about this," says Johnson, "and the word kept coming back, 'We're complacent.'"

Overstated though it sometimes may be, this malaise is worth noticing. More than a simple local phenomenon, it goes to the heart of an emerging national debate over what it takes to make communities economically vibrant these days. "We've found there are three factors that determine the momentum of cities," says John Kasarda, director of the Kenan Institute of Private Enterprise at the University of North Carolina. "One is the national business cycle--no city is totally immune to national and global economic conditions. The second factor is the industry mix. Those are pretty traditional gauges. But it turns out there's a third factor, which we call city competitiveness. This is made up of such factors as the quality of life of the area; various types of business-climate factors, including whether it has a climate conducive to entrepreneurialism and risk-taking; and even such factors as the city's physical features... The point is that places have competitive features."

In essence, a set of strands once considered independent of one another--economic considerations such as the business tax rate; cultural features such as the liveliness of the local arts scene; amenities such as a downtown's walkability or neighborhoods' attractiveness to a diverse population; and the ability of a city's political and civic leadership to resolve difficult problems--all of these have come to be seen as intertwined.

The reason for this is an emerging school of thought that sees people, not companies, as the drivers of a region's economy and looks at what attracts them to live, work and start companies where they do. "Place has replaced the corporation as the fundamental organizing unit in our economy," says Richard Florida, an economist at Carnegie Mellon University who is one of the leading proponents of this notion. "In the old days, the corporation matched people to economic opportunities and functions; today, it's place that matches people to companies and companies to the people they need."

And that's what leaders in the Twin Cities are worried about, whether they express it in those terms or not. Their region still has plenty of corporations and plenty of jobs. But 30 years ago it was seen as one of America's most exciting places. Now it isn't.

Cities that were clearly several steps behind Minneapolis and St. Paul in the 1970s--Boston, Austin, Seattle, Denver and others--emerged in the 1990s not just as high-tech meccas but as the places to which the young and creative wanted to move. It's not that the region has failed to make progress, it's that, as Rybak puts it, "we could have progressed so much faster during this economic boom; good shouldn't be good enough for a city like this."

It is always worth approaching evaluations of civic attractiveness cautiously. After all, who in the 1970s would have predicted that Austin, Texas, would emerge as the envy of other cities, or that Providence, Rhode Island, would come back from the brink of death? The Twin Cities' own history serves equally well to make the point.

In 1936, Fortune magazine ran a long article exploring the roots of labor unrest in Minneapolis and St. Paul. It was full of practical information for business-minded visitors ("For political favors, see County Attorney Ed Goff in Minneapolis or Charlie Ward in St. Paul. If you want somebody killed, inquire along St. Peter Street.") It then went on to argue that for all practical economic purposes, the Twin Cities were finished, done in by the Panama Canal, which had eclipsed the railroads; the decline of the Midwestern timber industry; and organized labor's ability to prevent manufacturers from holding wages down. St. Paul, the article concluded, was already "decadent," while Minneapolis had only the "wistful" hope that the St. Lawrence Waterway would allow it to hang on.

"That article couldn't have been more wrong," says Ted Kolderie, the former director of the Citizens League in St. Paul and now an independent policy analyst. "Less than 10 years later, coming out of the war, the region was off on a period of growth that ran uninterrupted for decades, while other cities and metro areas in the North and Northeast stagnated."

In the 1950s and '60s, and on into the era of the Time magazine cover, the Twin Cities indeed had quite a bit to be smug about. Their corporations included not just Pillsbury and 3M and Dayton Hudson and the banks that had helped finance the growth of the Northwest, but the leading edge of the mainframe computer world: Honeywell, Cray Research, Control Data. Corporations pledged to give 5 percent of their pre-tax profits back to the community, making possible world- class cultural institutions. "If you grew up in Minnesota in the '60s and '70s," says Dave Hage, a Star Tribune editorial writer and the co- author, with Steve Berg, of Compete or Retreat, "you had a sense of Minnesota exceptionalism, the belief that this was a place where government worked, it was a cultural outpost, it was unusually compassionate."

It is this sense that the Twin Cities were, to be blunt, better than other cities that has taken the hardest blow in recent years. "There was a time when we thought the big problems of America wouldn't hit us," says John Brandl, a former state senator and now dean of the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota. "But they did." Struggling inner-city schools, racially segregated housing, middle-class flight, sprawl, strained neighborhoods--in these regards, the Twin Cities look a lot more like the rest of the country than they once did.

Of course, every big city in America has those problems to some extent, even the most successful ones. What strikes a visitor to the Twin Cities, though, is the challenge they face in boosting their physical vibrancy. One telling symbol of that problem is the glass skyways of downtown Minneapolis that link the office skyscrapers and allow workers and visitors to avoid the winter cold. People came to town in the 1970s and saw the skyways as an ingenious way of coping with climatic reality. But in the 1980s and '90s, cities all over the country came to believe that creating a vibrant street life was more important than climate control. Rainy Seattle and Portland, hot and sticky Austin and cold-weather Boston all found ways to bring life back to downtown sidewalks. Downtown Minneapolis was stuck with an entire infrastructure dedicated to keeping people inside.

These days, much of the Minneapolis "streetlife" takes place at the second-story level of office buildings, which are full of coffee shops and sandwich joints, dry cleaners and dental clinics; there's even a Skyway newspaper. Only during the summer does downtown come alive at street-level, and then it's only on a single street, Nicollet Mall. "There are lots of people, and farmers markets, and you go 'Yes! This is what we want!'" says Hage. "And then you turn the corner," adds Berg, "and you might as well be in Buffalo."

Inside the upper-floor suites of the skyscrapers, the region's corporate profile was also changing dramatically. The mainframe computer companies that gave the Twin Cities a high-tech shine in the 1970s and early '80s have either disappeared or moved--most recently, Honeywell was taken over by AlliedSignal, which kept the name but moved the headquarters to New Jersey. Norwest Bank, perhaps the region's premier financial presence, bought out California's Wells Fargo--and then moved to San Francisco. Even the ownership of the Minnesota Twins baseball team has been trying to shut the team down.

Although a significant number of important companies continue to do business there, there is a pervasive sense that the Twin Cities economy is no longer really local. "All these big companies that were founded and flourished with local talent," says University of Minnesota geographer John Adams, "they've been taken over by investment tools. 3M was controlled by a small number of people here, they all died, and now it's Wall Street. Even if the companies are still here, it's different if they're co-owned by Wall Street on the basis of quarterly reports and expectations, versus locally owned."

None of this matters a great deal as long as economic momentum remains largely a function of business climate. The Twin Cities may be located in a high-tax, highly regulated state, but that hasn't kept them from hosting a comfortable number of Fortune 500 headquarters (there were 13 of them in 2000.) When it comes to the proportion of residents who work in high-skill occupations, Minneapolis and Seattle aren't far apart. To some prominent citizens, these are tell-tale signs that the whole Minnesota Malaise idea is badly overblown. "The bottom line is, what's the engine of growth?" says Art Rolnick, senior vice president at the Federal Reserve Bank of Minneapolis. "One of the key ingredients is human capital. It makes a huge difference how educated the workforce is. Minnesota has had one of the most qualified for years. That was the engine of economic growth in the 1930s, and it will be in the future. If anything, the return to a college education has gone up. We have a highly educated workforce, and that's what matters--it's not going to depend on companies or stadiums or how hip we are or how complacent we are."

But to those who think there is something to worry about, human capital is precisely the point. "It's not just education," says Douglas Petty, who staffs the Great North Alliance. "Now, it's creativity, the ability to innovate, a high concentration of practitioners who can cross-fertilize one another." In his view, this is where the Twin Cities are in danger of losing out.

This point of view draws strength from the argument made by Carnegie Mellon's Richard Florida and the Urban Institute's Gary Gates in a much-noticed paper, "Technology and Tolerance," published last summer by the Brookings Institution. "The basic message to city leaders and economic developers is clear," Florida and Gates wrote. "Talented people go to places that have thick labor markets, are open and tolerant, and offer a quality of life they desire... Companies remain important, but no longer call the shots. The location decisions of people are just as important--potentially more important--than those of firms."

The point is that growth occurs in communities because they've got the kind of attributes--an innovative music scene, perhaps, or a vital community of creative artists, and an environment that encourages innovation and risk-taking--that attract the kinds of creative people companies need to prosper. So, for instance, IBM's Austin programming group created a pool of technological talent in the early 1980s that, along with graduates of the University of Texas, was available when Michael Dell founded his PC maker in 1988, which in turn spawned a string of tech start-ups.

Similarly, in Portland, Oregon, Tektronix, which in the 1950s was a leading maker of oscilloscopes, decided to start making its own cathode-ray tubes. "They began investing in other technologies, then assembled a group of people who got really smart about how you display information, which led to the first computer graphic display terminals, then flat-panel displays, then to people who design chips that are used in display systems," says Joe Cortright, an economist and economic development consultant based in that city.

Neither of these cities would have developed the momentum they did, though, had they not been the kind of places that people wanted to live in. "I think that's really the lesson," says Cortright. "It isn't really attracting the companies, it's more growing them, and attracting smart entrepreneurial people and creating a tolerant environment are some of the keys."

For the Twin Cities, the problem isn't that creative people shun them, and it certainly isn't an absence of diversity or tolerance. Few would dispute that both Minneapolis and St. Paul are more diverse and tolerant than in the glory days of the 1970s. The problem is that in the nearly 30 years since the Time cover, other places have gotten better at providing the same amenities--and much better at promoting themselves.

"If you went away in the 1990s for a few years and then came back," says Hage, "you saw there were a lot of vibrant, interesting cities with a terrific quality of life, great cultural assets and better weather. Even what Minnesota really prided itself on--effective, professional government--you saw in other cities, which had effective planning, lots of green space, well-run governments."

Assuming that the momentum has been lost to some significant degree, the question is how to get it back. Hage and Berg lament the difficulty the region has had deciding to support a new baseball stadium or to underwrite the cost of a new center for the renowned Guthrie Theater. Rybak, for his part, has decided to focus on improving the city's streetscape, strengthening its neighborhood development functions and rebuilding its civic infrastructure; others argue that the focus should be on the University of Minnesota--which sits between downtown Minneapolis and downtown St. Paul--and its potential for anchoring a community of high-tech spin-offs. Still others are looking for ways to build up the cities' arts community, which is substantial, but unlike that of Austin or Seattle, not well known beyond the immediate area.

What may be most significant, though, is the fact that the debate has focused on matters such as this, rather than on developing a particular industry. It is a recognition that what matters to a metropolitan area now is the demographic and cultural climate in which an economy develops, rather than the particular companies that drive it. "The thing everyone's trying to guess," says Joe Cortright, "is, what's the next big thing? There was this computer thing, and then there was this PC thing, and then for a while there was this dot-com thing. So what's next? Well, I think that's unknowable. What we do know is the kind of places that will generate it."

Rob Gurwitt  |  Former Correspondent

More from Economic Development