Building a New Financial Base

Cities that retool for a global economy can set the stage for a reliable revenue stream.
November 10, 2011 AT 5:00 PM
Penelope Lemov
By Penelope Lemov  |  correspondent
Penelope Lemov is a GOVERNING correspondent. She was GOVERNING's health columnist and was senior editor for several award-winning features.
Penelope Lemov
By Penelope Lemov  |  correspondent
Penelope Lemov is a GOVERNING correspondent. She was GOVERNING's health columnist and was senior editor for several award-winning features.

In September, I reported on housing -- how cities are watching the market closely and for good reason: As housing booms, local and state economies pick up speed. Relief still seems a good ways off. Whether a housing recovery is near or far, what a growing number of economic experts are saying is that states and cities need to rebuild their economies on a different, more solid base.

Bruce Katz, the founding director of the Brookings Institution's Metropolitan Policy Program, has some ideas on that score. Not only ideas, but a ton of money. His Global Initiative program, which is designed to help cities develop new growth engines, just received a $10 million gift from JPMorgan Chase to underwrite its work.

Here's an edited version of our conversation, as well as links to resources that, Katz says, all cities can use in their rebuilding efforts.

You argue that U.S. cities need to grow a different kind of economy. What kind of economy are you talking about?

At the city-metro level, there has been too much focus on what we call Starbucks, stadia and stealing businesses. It's a consumption-driven growth model that in the end doesn't really expand and extend your economy. It's just recycled income. We've got to grow the pie. We believe, as do many others, that we need to use this past recession as a wake-up call and shift to an economy that first and foremost is driven by exports, greater global engagement, and the production of high-value goods and services -- building off what has been our manufacturing base and advanced-services base. That will be the way to enhance the fiscal base of cities. Exporting firms, manufacturing firms and innovative firms pay better wages for a broad spectrum of the workforce.

How do you get there from here?

The first thing that has to happen is the cities and metro areas need to understand their position in the global economy. There was a uniformity about the prior economy: a Wal-Mart is a Wal-Mart is a Wal-Mart whether it's in Phoenix or Pittsburgh. But what Phoenix and Pittsburgh trade within this country and with the rest of world is completely different. My view is that going forward cities and metros need to be very intentional and purposeful about building on special assets and strengthening their distinctive strengths. If you do that, housing and retail will follow. Those are derivative -- not driving -- sectors. We lost sight of that fundamental economic fact.

What kind of help will the Global Initiative offer?

We'll help cities assess their strengths and help them position themselves in the global market. What do you trade? Who do you trade with? What kind of foreign investment are you attracting? What kind of skilled immigrants are you attracting? And how do you build from your current position and engage globally? We'll give cities a road map for doing that.

What might a city strategy look like?

As a starting point, successful metro areas understand who their trading partners are domestically and globally. You see this in Seattle and Northern California. They interact on a constant basis with the cities and countries they trade with and strengthen the linkages between their communities and their trading partners abroad. A lot of trade growth is relationship-driven. At the city level, what matters are relationships between and among elected officials, investors, manufacturers and service firms. San Francisco has become pretty adept at helping local firms identify markets abroad and helping Chinese investors find good investments here. That's next generation economic policy. In Los Angeles, Antonio Villaraigosa recently announced an export plan that will help businesses find the specific services they need. We're working with cities and metros on these export strategies.

How will you use the $10 million from JP Morgan?

It gives us resources to do trend analysis so that every city and metro area understands their global starting point. Frankly that information is not available in the U.S. We know everything you possibly would like to know about Christmas retail sales but we barely understand what a city exports out and what investment we track back. With our partner JPMorgan, we'll select a series of metro areas and hold forums. It won't just be for the metro area where the forum is held, but for a network of metro areas in that state. When we have a session in Los Angeles, we will include metro San Diego. In Ohio, it won't just be Columbus but Cleveland, Cincinnati and Dayton. That way we get a mix of metro places and leaders that can compare and share -- both their starting position and policy and practices.

A lot of data we want to supply doesn't exist. We'll build a new database. Watch for the data that will roll out of here on a constant basis over next five years. It will allow cities, irrespective of whether we come to their community, to know themselves much better.

Given the migration of U.S. manufacturers to countries with lower wages and the competition within the U.S. to lure companies from one state to another, how do you keep those manufacturing jobs in place?

The dynamics of manufacturing are changing pretty radically. Wages in China are going up. Energy sources in China are not reliable. If we bring shale gas online in the U.S., it's a game-changing energy source. Boston Consulting Group had a report a month ago about American and foreign manufacturing firms looking at the U.S. as a place to produce again. We are still a manufacturing powerhouse. The rise of China, India and Brazil opens up enormous opportunities for American goods and services if we can seize it.

The bulk of positive job growth builds from current clusters and sectors. Stealing business from a neighboring state is a low road kind of growth. Building on special, distinctive strength is the high road. When you build a robust platform for advanced manufacturing or high-value services, that's the gift that keeps on giving. Development of a successful economy starts with an understanding of who you are. What is the distinctive nature of your economy. It's not how to be like everyone else, which describes the old economy -- building lots of housing, attracting big-box retailers. The next economy will reward places that build on distinctive strengths.