GCI Denver: Metro Denver and the Next Economy

Bruce Katz
Bruce Katz Founding Director of the Nowak Metro Finance Lab - Drexel University

June 27, 2013

Editor’s Note: On June 26, 2013, Brookings vice president Bruce Katz spoke at the Denver convening of the Global Cities Initiative, a joint project of Brookings and JPMorgan Chase to catalyze high-level discussions of metropolitan leadership in the world economy and the actions metro leaders can take to improve trade relationships with cities in mature and rising markets. The forum brought together distinguished regional, national, and international leaders from the business, civic, government, and philanthropic communities to explore how the metro Denver area can enhance its ability to compete globally.

Global Cities Initiative, Denver

Thank you, for that introduction. It’s great to be back in Denver.

For the past three years, the Brookings Metro Program has been boringly consistent about the economic challenges facing our country.

At the most basic level, the U.S. needs more jobs—10 million by one estimate—to recover the jobs lost during the downturn and keep pace with population growth and labor market dynamics.

Beyond pure job growth, we need better jobs to grow wages and incomes for lower and middle class workers and reverse the troubling decades-long rise in inequality. In fact, between 2000 and 2011, the number of poor and near poor in the United States increased from 81 million to 107 million—nearly one-third the total population of this country.

There is no easy fix to achieve these twin goals. But one thing is clear: we will need to purposefully restructure our economy from one focused inward and characterized by excessive consumption and debt to one globally engaged and driven by production and innovation. 

Today, I will make three main points:

First, in the aftermath of the Great Recession, the U.S. must pursue a different growth model, a “next economy” that is driven by exports and global engagement, powered by low carbon and advanced energy, fueled by innovation (both ideas and manufacturing), and rich with opportunity. This is a vision where we export more and waste less, innovate in what matters, produce and deploy more of what we invent, and ensure that the economy actually works for working families.

Second, the next economy will be largely metropolitan, in form and function. Our major metropolitan areas, already generate more than three quarters of gross domestic product, concentrate the production of advanced goods and services that we sell abroad and are the logistics hubs of the global trading system. As you will see, Denver’s profile—what you trade, who you trade and engage with—is highly distinct.

Finally, metros are driving innovation—in practice, in policy, in the formation of global trade links.

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 a fifth of the global GDP in 2009, surpassing the United States for the first time. By 2018, the BIC share will grow to more than 28 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—China, in particular. The 30 worst metro performers are nearly all located in Europe.  

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 36 percent of our population has a passport, well below the shares for countries like Canada and Germany.  

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 aircraft, spacecraft, 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 #1 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.  

The clean economy is also an export powerhouse: in 2009, clean economy establishments exported almost $54 billion. Clean economy establishments are twice as export intense as the national economy—a solid platform to serve the demand for sustainable growth as rising nations continue to urbanize.

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 result of these trends is a slow but steady re-shoring of U.S. manufacturing.

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, including “rural” states like Nebraska, Iowa, Kansas, and Arkansas.

Colorado is a metro state—its top 2 metropolitan areas house 64 percent of the state’s population and GDP.

All 7 of this state’s metropolitan areas house 86 percent of the population, and generate 85 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.

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

A Wal-Mart 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 Denver special is different from what drives Austin or Denver or Detroit. 

Denver is a research center with 24 federal research institutes including NOAA and the National Renewable Energy Lab; it is a base of advanced aerospace manufacturing, a logistics hub with the nation’s 4th busiest airport, and a model for developing regional infrastructure to solve transportation challenges.  

These are all tremendous assets, but when we think about Denver, we also think about its position in the next economy.

On manufacturing, the region has 61,102 jobs. Denver is well below the national average for manufacturing employment share, with only 5 percent of jobs in the sector. The industry is also stagnant here, barely growing while the U.S. sector as a whole grew 2.7 percent. Top manufacturing sectors: food, fabricated metals, computers and electronics, aerospace.

Denver is also lagging on exports. It is the 21st largest metropolis by population, but only the 25th by exports, sending $10.2 billion in goods and services abroad in 2010. Your export intensity is also slightly below the top metro average, with 7.2 percent of GDP in exports.

Services make up about 56 percent of your exports, well above the national share of 33 percent. Top sectors: travel and tourism, business services, and royalties.

Goods exports contribute about 47 percent of metro exports. Top sectors: transportation equipment, petroleum and coal, and electronics.

Not surprisingly, Denver’s top trading partners are Canada and Mexico, but you also have a strong trade presence in rising nations like China, Brazil, and South Korea.

You have strong connections to Latin America and Western Europe, as indicated by the share of total passenger air travel to and from Denver that goes to these regions.

And your top metro-to-metro connections for air passengers to and from Denver were to Cancun, London, Toronto, Puerto Vallarta, and Mexico City in 2011.

Now to my final point, namely that, as the economy becomes increasingly global, 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 export 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, using data to identify and exploit their distinctive competitive advantages in the global economy.

Today, we are very happy to be releasing a brand new report—the 10 traits of Globally Fluent Metro Areas—that offers a complete framework for metropolitan self assessment in the global economy.

The goal is to get metro leaders thinking about what we call global fluency. Metros that are high in global fluency are able to optimize the benefits of globalization and minimize its challenges. 

The Ten Traits framework is designed to prompt serious self-reflection in metropolitan leaders—to assess their strengths, identify their weaknesses. The result is not a ranking or an index; rather the ten traits framework provides a continuum of global fluency—and a way forward.

Our team has identified these ten traits as key drivers of global fluency in metro areas. The selection process was driven by 42 case studies of individual metro areas throughout the world and in consultation with leaders in each region.  In addition to the summary of each trait you received, the full report is available today online … but let me dive into just two of these to give you a preview.  

Let’s start with Leadership with a Worldview and the importance of local leadership networks that understand the need to think globally. In fact, we’ve highlighted this as a real strength here in Denver. As a metro area not ideally placed for global connections—landlocked far from international borders—this type of purposeful engagement is critical for Denver. Two things here that typify this: first, the Metro Denver Economic Development Corporation put serious effort into getting the data right and identifying globally competitive clusters which has resulted in tremendous growth for the aerospace cluster here. Second, leaders in the region are collaborating to compete—regional collaboration was key both to building regional infrastructure and growing global connections to the region, culminating with the direct flight to Tokyo that’s just starting up from DIA.

Next, creating a culture of knowledge and innovation. Metros are quickly realizing that in a world economy that is increasingly knowledge-driven, you need a high level of human capital in your workforce to be globally competitive. This is another area of strength here in Denver: your total share of jobs that require STEM skills is the 17th highest in the country, and nearly 60 percent of these jobs requiring a B.A., Denver is the fifth most high-skill intensive STEM economy in the country.

These two traits show just a sample of the quantitative & qualitative mix within the framework of the Ten Traits self-assessment. Metro leaders will have to work through each trait in a purposeful way to identify deficiencies and move towards a higher level of global fluency. To start, we hope to work with a few metro areas to do just that, and following that we will be coming out with a workbook that will guide metro leaders through the process.

After innovating locally, metros must advocate nationally for federal and state policies and practices that will support metro growth.

What do metros want?  On one level, they want the federal government and the states to set a solid platform for export growth generally. 

At the same time, they want federal and state policies to be nimble enough to align specifically with the distinctive visions and strategies of disparate metros.

Let’s be frank. There is a lot of work to do here to meet metropolitan expectations and realize metropolitan potential.

Many states took the easy route over the past two decades, turning their focus away from policies that support advanced manufacturing and exports.

But there are several best practices to highlight at the state level:

The first that I have been talking about around the country is here in Colorado. The state  launched an initiative to grow its aerospace cluster, and has offered $20 million competitive matching grants for early-stage technology development in the state.

In Ohio, the successful Third Frontier program will invest $700 million in the state’s innovation eco-system between 2010 and 2016. The state also operates 7 regional centers that provide services for innovation commercialization.

 Florida—through Enterprise Florida—operates 12 international offices and its export assistance and business development programs added roughly $3 billion to state GDP in 2011.

It’s Office of Freight, Logistics, and Passenger Operations coordinates multi-modal freight statewide by aligning with regional freight strategies.

With partisan gridlock, the federal lift for supporting exports will be heavier than the states.

Ideally, the federal government will enact more trade agreements to open new markets. President Obama has recently been discussing and working towards trade pacts with Europe and a Trans-Pacific Partnership.

It should also undertake a comprehensive immigration reform to allow more highly-skilled immigrants to move to or remain working in the U.S.

It should modernize trade corridors through a national freight strategy

It should work through the Ex-Im Bank to provide more small and medium-sized firms with the financing they need to begin or grow their exports.

And, finally, it should provide key international market intelligence to businesses through the Department of Commerce’s International Trade Administration.

Beyond innovating locally and advocating nationally, U.S. metros must network globally –
creating and stewarding close working relationships with trading partners in both mature economies and rising nations.

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 Denver is building connections with the world’s other major aerospace hubs in Europe and Asia.

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 many respects, these 21st century networks are not new. 

They harken back to the way the global economy evolved before the rise of nation states. We’ve created a video that I think illustrates this point perfectly, and I would love to close with it: