2012 State of the Region Breakfast, Atlanta Regional Commission

Delivering the Next Economy in Metro Atlanta

Editor’s Note: During an event hosted by the Atlanta Regional Commission, Bruce Katz highlighted the metropolitan area’s current economic strengths and provided ways for leaders to leverage their assets and build Atlanta’s next economy.

Thank you Tad for that introduction. It’s great to be back in Atlanta.

This region has tremendous assets and strengths to build on for the future, from—as you just saw —a burgeoning arts and culture sector to your strengths as a logistics hub to numerous Fortune 500 companies to world class research universities to a talented and diverse workforce to your “livable centers initiative” that focuses on developing quality places.

My remarks today will focus on how to harness these strengths to drive innovative and productive economic growth going forward. In the wake of the brutal Great Recession, one thing is clear: The U.S. needs to purposefully restructure the economy from one focused inward and characterized by excessive consumption and debt to one globally engaged and driven by production and innovation. 

So let me begin by offering a vision for the next American economy.

Visualize an economy where more firms in more sectors trade more goods and services seamlessly with the world, particularly with nations that are rapidly urbanizing and industrializing.

Why exports?

Because we have crossed an economic Rubicon.

Together, Brazil, India and China … the BICs … accounted for about one-fifth of the global GDP in 2009, surpassing the United States for the first time. By 2015, the BIC share will grow to more than 25 percent.

The rise of the BICs reflects the rise of metros.  For the first time in recorded history, more than half of the world’s population lives in cities and metropolitan areas. By 2030, the metro share will surpass 60 percent.  Rising nations and their rapidly growing metros now power the world economy and drive global demand.

The locus of economic power in the world is shifting.  The top 30 metro performers today are almost exclusively located in Asia and Latin America. The 30 worst metro performers are nearly all located in Europe, the United States and earthquake-ravaged Japan.  

The U.S. needs to reorient our economy to take advantage of this new demand. In 2010, exports made up only 13 percent of the GDP of the U.S. compared to 30 percent in China, 29 percent in Canada, and higher levels in India, Japan, and the entire EU.

The movement of freight in the United States is compromised, undermined by transport networks that are clogged and congested and an infrastructure that is third class.

And, culturally, Americans don’t get out much.  Only 28 percent of our population has a passport.

Can we get back into the export game?  The answer is decidedly “yes.”

We still manufacture a range of advanced goods that the rest of the world wants including air craft, space craft, electrical machinery, precision surgical instruments, and high quality pharmaceutical products.

For all the talk of a post-industrial economy, the U.S. remains a manufacturing powerhouse, exporting $944 billion in manufactured goods in 2010.

This made us the third largest manufacturing exporter in the world, behind China and Germany.

But this is not just about the advanced manufacturing of high value goods.  America is the number one exporter of private services in the world, exporting $518 billion in services in 2010, which gave us a $160 billion trade surplus in services.

Bottom line: America’s potential for exports is hidden in plain sight. 

Low carbon is the second hallmark of the next U.S. economy.  Let’s imagine a world where America is the vanguard of the clean, green industrial revolution.

 Everything … is changing.

The energy we use … the infrastructure we build … the homes we live in and the office and retail buildings we frequent … and the products we buy … are all shifting from modes that are outdated to systems that are smarter, faster, more technologically enabled and more environmentally sound.

Our competitors—China, Germany, Brazil—have embraced the clean economy, creating markets, growing jobs and stimulating investment.

Can the U.S. even play in the low carbon revolution?

Our research shows that we already have a strong base of 2.7 million clean economy jobs, in sectors ranging from renewable energy to pollution reduction.

To put that number in perspective: the clean economy is nearly twice the size of the biosciences field and 60 percent of the 4.8 million strong IT sector.  As you can tell, the clean economy also has more jobs than fossil fuel related industries.  

So this leads naturally to a discussion of innovation.  The U.S. must be the world’s Innovation Nation, a hot house of invention and the platform for advanced production.

This means we must embrace something earlier generations intuitively understood: the inextricable link and virtuous cycle between innovation and manufacturing.

While only about 9 percent of all U.S. jobs are in manufacturing, about 35 percent of all engineers work in manufacturing.

Although the manufacturing sector comprises only 11 percent of GDP, manufacturers account for 68 percent of the spending on R&D that is performed by companies in the United States.

 

And manufacturing is responsible for 90 percent of all patents in the United States.

Going forward, we will innovate less if we do not produce more.  We must make things again. 

Can the U.S. seize the future and realize its potential as an Innovation Nation?

Market dynamics are changing globally. Labor costs are now rising in China, and concerns persist about the protection of intellectual property. 

Energy can be cheaper here, and more reliable. 

The tsunami in Japan, the world's main supplier of many high tech components, revealed the fragility of far-flung supply chains for many U.S. companies.

And there is strong evidence that we are experiencing a manufacturing moment: the manufacturing sector has contributed 38 percent of GDP growth post-recession.

Finally, the next economy has the potential to be opportunity rich.

Research shows that firms in export-intense industries pay workers more and are more likely to provide health and retirement benefits.

Building the next economy will require the United States to get real smart … real fast.

Yet the rates of educational attainment are lowest among these fast-growing groups.

In 2010, only 19 percent of Hispanics and 25 percent of African Americans had completed an associate’s degree or higher, contrasting sharply with the rates for whites and Asians.

In the decades ahead, upgrading the education and skills of our diverse workforce is no longer just a matter of social equity.  It is fundamentally an issue of national competitiveness and national security.

So here is my second proposition: The next economy will be largely metropolitan, in form and function.

The 100 largest metropolitan areas are the real heart of the American economy. After decades of growth, they take up only 12 percent of our land mass, but harbor 2/3 of our population and generate 75 percent of our gross domestic product.

These communities form a new economic geography—enveloping cities and suburbs, exurbs and rural towns.

And they pack a powerful punch. Metro areas generate the majority of GDP in 47 of the 50 states.

Georgia is a metro state—its top three metropolitan areas house 61 percent of the state’s population and 66 percent of its GDP.

All 15 of this state’s metropolitan areas house 82 percent of the population, and generate 87 percent of state economic output.

On exports, the top 100 metros dominate. In 2010, they produced an estimated 65 percent of U.S. exports, including 75 percent of service exports, and 63 percent of manufactured goods that are sold abroad.

Given their edge in sectors like chemicals, consulting and computers, the top 100 metros are on the front lines of commerce with China, Brazil and India.

The top 100 metros drive exports for another good reason.  They are our logistical hubs, concentrating the movement of people and goods by air, rail and sea.

Beyond exports, the top 100 metros also dominate critical sectors of the low carbon economy, concentrating a super majority of the jobs in solar energy and wind energy, and energy research, engineering and consulting services.

They also harbor 90 percent of the jobs in green architecture, design and construction since making buildings energy efficient will primarily be a metropolitan act, given where most people live and businesses locate. 

On innovation more broadly, our metropolitan areas are the nation’s knowledge centers.

 They gather our most educated citizens, produce the bulk of our patents, receive the lion’s share of NIH and NSF research funding and provide almost all of the venture capital that turns research ideas into production.

The next economy, unlike the consumption economy, is highly differentiated.

A Walmart outside Atlanta is the same as a Walmart outside Austin.

Same design.   Same footprint.  Same goods.

A housing subdivision outside of Denver is the same as one outside Detroit.

But what makes Atlanta special is different from what drives Austin or Denver or Detroit. 

So let’s dig deeper into your export profile: Atlanta—the ninth largest metropolis by population —is America’s 13th largest metro exporter, sending $20.0 billion in goods and services abroad in 2010. Your exports support more than 151,700 jobs throughout the metro area. Your export intensity lags the nation, but this is typical of metros like Atlanta that have large and diverse economies.

Services make up about 53 percent of your exports, larger than the national share of 33 percent. Top sectors: travel and tourism, business services, and royalties.

While this metro has a high service export intensity, manufacturing is also a critical base for your global competitiveness, contributing about 47 percent of metro exports. Top sectors: chemicals, transportation equipment, and food.

In the clean economy, Atlanta has a strong base of 43,060 clean jobs—seventh largest among U.S. metros. While the region lags slightly on intensity of clean jobs behind the state of Georgia and the U.S. overall, Atlanta has significant strengths in the clean economy, including smart grid, water efficient products, and appliances.

On manufacturing, the region has 142,416 jobs. Manufacturing is an expanding sector in Atlanta, growing by 4.3 percent between 2010 and 2011, better than the 2.7 percent for the U.S. overall. Top manufacturing sectors: food, plastics and rubber, computers and electronics, fabricated metal products, and printing and support activities.

Finally, on opportunity, Atlanta has both some challenges and opportunities. The region’s rate of educational attainment is higher than the U.S. overall, but there remains a relatively strong disparity in rates of attainment by race. The metro also has a high share of middle-skilled (those with a high school diploma and some college) and high-skilled (BA or higher) immigrants than the country overall.

By contrast, however, transit accessibility in the Atlanta metropolitan area is significantly worse than the average of the top 100 metro areas. Only 22 percent of jobs in the region are reachable via public transit in a 90 minute commute.

That leads to my final point, namely that metros are driving innovation—in practice, in policy, in the formation of global trade links and networks.

This is a major structural shift.   Setting and stewarding the platform for a strong economy has traditionally been almost the exclusive role of the federal government, given its powers over trade, taxes and currency and investments in innovation, human capital, infrastructure and export promotion and finance.

Yet with partisan gridlock, even the easy stuff has become extraordinarily difficult.

In this polarized environment—metros, already the engines of the national economy—are doing double duty and helping create an environment for productive and innovative growth

Three things are happening:

First, metros are innovating locally with metropolitan business plans that exploit their distinctive competitive advantages in the global economy.

Over the two past years, Brookings has worked closely with leaders in Northeast Ohio, and a number of other metropolitan areas—including Los Angeles, Minneapolis-Saint Paul, Portland, Seattle, and Syracuse—to invent and pilot actionable business and export plans.

The elements of business and export planning and action are fairly simple and straightforward

Each metropolis does a market assessment of their unique economic profile and potential … what goods and services they trade, which nations they trade with, where trade trends are likely to head given market dynamics here and abroad. 

Armed with this information, metros then set goals and objectives that build on their distinct advantages, devise strategies to meet those goals and establish metrics to gauge progress.

All these efforts are undertaken by a consortium of corporate, government, university and civic institutions that cut across jurisdictions, sectors and disciplines and “collaborate to compete” globally.

Northeast Ohio’s plan, for instance, brings together a disparate group of business intermediaries and universities in four closely-clustered metros—Cleveland, Akron, Youngstown and Canton. Their aim: to help small and medium sized manufacturing firms retool their facilities and retrain their industrial worker for sectors poised for growth: fuel cells, electric vehicles, and medical devices.

The NE Ohio plan is not shelf ware. Firms are already engaged and the early returns for firm restructuring and job growth are very positive. 

What could a business plan in the Atlanta region focus on? You have incredible assets and clusters to build from; one being that you are one of America’s largest logistics hubs.

Hartsfield-Jackson Airport is the busiest airport in the world, moving 92.3 million passengers and 663,162 metric tons of cargo in 2011. Yet, the real promise of this region—to benefit Georgia and the nation—will not be realized unless Atlanta builds upon its unique assets and location to move up the economic value chain.

Atlanta cannot just be a place through which goods and people flow, it should be a center for advanced production and services. Evolving from port to production, from tourism to technology, from airport to aerospace, will not just happen. Strategic steps must be taken on special trade zones, commercialization of innovation, career and technical services, and local regulation.

Beyond production, the spatial geography of innovation needs special focus and attention. Economic restructuring and demographic transformation is driving a new form of place-making within cities and metros. Innovation districts are a 21st century economy-shaping/place-making strategy that connects and clusters innovation-generating anchor institutions and companies with entrepreneurial firms, infrastructure, housing, retail, and amenities.

This approach contrasts with the approach in the 19th century and early 20th century—in Manchester, in Torino, in the Ruhr Valley, in our industrial Midwest—when we built industrial districts, characterized by a high concentration of industrial enterprises commonly engaging in similar or complimentary work.

Later, in the mid and late 20th century—in Raleigh-Durham, in Silicon Valley, in suburban Washington, Boston, and Seattle—we built science and research parks and corporate campuses.  Spatially isolated, accessible only by car, these parks put little emphasis on the quality of place or on integrating work, housing, and recreation.

Innovation districts place a far greater emphasis than industrial districts or science parks on the physical realm—infrastructure, urban design, and architecture—as well as the community environment—affordable housing, social activity, cultural institutions, and events. 

These districts are a relatively small geography within the larger metropolis.

As I mentioned before, Atlanta has phenomenal assets concentrated in its downtown and midtown region that could form the basis of a world class innovation district: Fortune 500 companies like Coca-Cola and CNN, a cluster of educational institutions including Georgia Tech, Emory University, Georgia State, Clark Atlanta University, and Morehouse College, arts and cultural institutions like Fox Theater, the Woodruff Arts Center, the High Museum of Art, and plenty of green space and amenities, such as the Centennial Olympic Park.

Atlanta’s thriving arts and culture is another major strength. In this same region of the city are a high concentration of arts and culture venues that I named before. These are just some of the many institutions and venues in Atlanta and only part of a burgeoning arts and culture scene in the metropolis.

Whatever strengths you build on, Atlanta must network globallycreating and stewarding close working relationships with trading partners in both mature economies and rising nations.

Across U.S. metros, strong connections already exist:

Metros with concentrations in financial services, like New York, are forming tight, interlocking networks with similarly focused metros around the world.

Metros with concentrations in advanced manufacturing, like Detroit, are similarly linking with metros in both developed and rising nations.

And port metros like Los Angeles are making key connections with the world’s air, rail and sea hubs.

These networks obviously start with firms and ports that do business with each other.

But, over time, they extend to supporting institutions—governments, universities, business associations – that provide support for companies at the leading edge of metropolitan economies.

In Atlanta, you already have natural connections with your major trading partners: Canada, Mexico, Japan, United Kingdom, and China.

But you also have connections with other metros, such as Seoul, London, Toronto, Cancun, and Montego Bay, Jamaica, through business and tourism travel.

Going forward, this region must strengthen these connections and forge new connections in order to thrive in the global economy.

Los Angeles has recently taken steps towards strengthening its global connections. They developed a metropolitan export plan helped them create a new Los Angeles Regional Export Council to identify and proactively support export-ready firms in your leading sectors.  Their plan is smartly focused – targeted on boosting exports in 12 industries, including aerospace, computers, pharmaceuticals, professional services and film and television.

Finally, having innovated at home and networked globally, metros must advocate nationally for federal and state policies and practices that will support metro growth.

Everything I described implicates the federal government and state government, from infrastructure to education to advanced R&D and innovation.

This is the Executive Branch of the federal government today: a sprawling, legacy, byzantine, enterprise. Beyond the incredible number of agencies, many have duplicative functions. The Simpson Bowles Commission, for example, found that there are over 44 job training programs across nine different federal agencies, and 105 programs meant to encourage STEM education.

Metros like Atlanta need to be part of the solution in assisting the federal government with the likely scale-back in programs over the next few years, so that limited investment go farther by becoming more focus or flexible for varied local problem-solving. 

Consolidating the nation’s disparate trade agencies, for example, would improve performance and better serve the growing bottom-up urgency in U.S. regions on exports.

President Obama has proposed consolidating six agencies involved in trade activities – the U.S. Department of Commerce’s core business and trade functions, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, and the Overseas Private Investment Corporation.

Yet consolidation would be a failure if it just moved agency boxes around in Washington, D.C.

The key to success is to integrate activities on the ground so that local representatives of the federal export agencies operate as a unified team with metropolitan areas and states – with one set of export objectives, one set of performance metrics and a clear system of referring clients and sharing information.

In other areas, the federal government must cut to invest in order to rein in our nation’s expanding deficit and make available capital for a limited number of transformative investments—in R&D, in innovation hubs, in infrastructure finance, in human capital. The Simpson-Bowles report from 2010 offers a possible path forward for federal budget reform.

Let me conclude where I began.

The United States is in the midst of a Metropolitan Revolution.

Like all great revolutions, this one starts with a simple but profound idea. Cities and metropolitan areas are the driving engines of nations and national economies, here and abroad.

Like all great revolutions, it has been ignited by a spark.  The Great Recession was and continues to be a shock to the American zeitgeist, a brutal wake-up call that revealed the failure of a growth model that exalted consumption over production, speculation over investment, and waste over sustainability.

Like all great revolutions, it has been catalyzed by a revelation.  Cities and metropolitan areas are on their own.  Mired in partisan division and rancor, the federal government appears incapable of taking bold actions to restructure our economy and maintain those policies in a predictable fashion over time. 

To paraphrase Pogo, we have met the solution and it is us. 

And there are no excuses. There is no deus ex machina. The cavalry is not coming.

American federalism arms cities and metro areas with the talent, power, permission, and, in many cases, the resources to shape their economic futures/destinies.

It is time to act like the engines of the economy you are. Good luck. Carpe diem.