Los Angeles and the Next Economy

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

March 21, 2012

Editor’s Note: During a forum hosted by the Global Cities Initiative in Los Angeles, Bruce Katz delivered a presentation and remarks describing why the metropolitan area must increase trade and boost exports.

Video Clip—Metropolitan Exports and the Los Angeles Profile:

Full Video of Bruce Katz’s Presentation:

Remarks by Bruce Katz:

Thank you for that introduction Peter, and for spearheading our partnership with JPMorgan Chase. And, thank you Mayor Daley for chairing this new initiative and giving us the benefit of your long experience and leadership in the global arena.

As both Peter and Mayor Daley plainly said, the primary goal of this effort is to dramatically enhance the global fluency of U.S. city and metropolitan leaders so that their economies can realize their full potential. This initiative and this forum could not be more timely.

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 – 11.4 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.

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, L.A.’s export profile – what you trade, who you trade with – is highly distinct.

Finally, metros are driving innovation — in practice, in policy, in the formation of global trade links. Los Angeles is part of this innovative wave and is actually leading a group of metropolitan areas that are determined to build their export economies from the bottom up by: innovating locally, advocating nationally, and networking globally.

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 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 have passports.

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

We are having a mini export renaissance in the U.S. Export sales grew by more than 11 percent in 2010 in real terms, the fastest growth logged since 1997. Incredibly, exports were responsible for 46 percent of GDP growth between 2009 and 2011.

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. 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.

To paraphrase the old motto for Trenton: what the U.S. makes, the world takes.

But this is not just about the advanced manufacturing of high value goods. America is the top exporter of private services in the world, exporting $518 billion in services in 2010, which gave us a $160 billion trade surplus in services. In 2010, U.S. exports of private services represented 14 percent of global service exports, more than double the share of Germany, the second ranking country.

America’s potential for exports is hidden in plain sight. President Obama’s 2010 challenge to double exports in five years was exactly the kind of ambitious, far reaching goal we need post-recession.

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.

For our purposes today, the clean economy is also an export powerhouse: in 2009, clean economy establishments exported almost $54 billion.

Significantly, 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.

Over the past two decades, the discussion of innovation has narrowed, positioning it as something only conducted in the ivory tower or among exceptional entrepreneurs like Steve Jobs. We forgot something early 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.

Can the U.S. seize the future and realize its potential as an “innovation nation”?

We now place just 45th out of 93 countries in the share that science and engineering degrees make up of bachelor’s degrees. Going forward, we will innovate less if we do not fully embrace science and technology. The U.S. lags on the conversion of innovation into home grown production. We have gone from running a trade surplus in advanced technology products to running a trade deficit over the past decade. Going forward, we will innovate less if we do not produce more. We must make things again.

It is time to rediscover our innovation mojo: in our vocational and tech schools, in our research labs, on our factory floors, in the trade-able goods and service sectors that drive wealth creation and sustainable growth.

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. Yet building the next economy will require the United States to get real smart, real fast.

Over the next several decades, African Americans and Hispanics will grow from about 25 percent to nearly 40 percent of the working-age population. 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.

Here is the real heart of the American economy: 100 metropolitan areas that after decades of growth 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 such “rural” states as Nebraska, Iowa, Kansas and Arkansas.

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. Metro economies, of course, do not exist in the aggregate; they have distinctive starting points and distinctive assets, attributes and advantages. 

Every U.S. metro presents a different economic face to the world. Our research digs deep to unveil the export (and innovation) profile of each of the top 100 metro areas.

Here you see our super-sized export performers: Los Angeles and New York, which both exported nearly $80 billion in 2010, and Chicago and Houston, which topped $48 billion that year. The top 10 metro exporters — including Dallas, San Francisco, Seattle, Philadelphia, Boston and Detroit — all exceeded $26 billion in exports. Taken together, these metros account for 28 percent of U.S. exports.

But this is not just about the large, diversified economies.

These 10 metropolitan areas saw the fastest manufacturing-driven export growth, all having more than 88 percent of their 2009-2010 export expansion coming from goods production.

A completely different set of metropolitan areas, mostly in the Northeast, are implicated by the rapid rise in education exports. Boston leads with education providing 4.8 percent of their total exports.

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

A Walmart outside Los Angeles is the same as a Walmart outside Las Vegas. Same design. Same footprint. Same goods.

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

But what makes Los Angeles special is different from what drives Las Vegas or Denver or Detroit.

Let’s take a quick trip to explore and experience what makes you a truly global metropolis. You are the largest metro exporter in the country and your export intensity is above the top 100 metro average, which is remarkable for a place of your size. Your export economy is more service oriented than the national average — driven by royalties, travel and tourism and business and professional services.

That’s not surprising. Ask anyone what they think L.A. produces:  Hollywood is the first thing that comes to mind. In 2010, royalties were a $12.4 billion export industry, powered by film and television.

Yet L.A. does not just make films, it makes things: Close to 60 percent of your exports comes from the manufacturing sector, and you have over 106,000 direct export manufacturing jobs.

In Torrance, southwest of downtown, we find Luminit, a small manufacturer of advanced lighting products that are used in a broad range of applications. Luminit’s production center houses some of the world’s most advanced equipment for R&D, engineering, and the manufacturing of optics. In the last two years, the firm’s exports have grown 68 percent.

Just to the south of Luminit is Pelican Products, a firm that produces high-performance protective cases and advanced portable lighting equipment used by law enforcement, defense, aerospace, and the entertainment industry. Exports make up 35 percent of Pelican’s total business, and the firm sells its products to over 100 countries. As with Luminit, Pelican has experienced significant export growth in the past few years, driven by strong demand in Europe and Asia.

Pelican is partnering with the University of Southern California’s Center for International Business Education and Research to help determine where to locate distribution centers in Asia. Additionally, the business schools at USC and UCLA have collaborated with the L.A. Area Chamber of Commerce to create the Export Champions program, which will provide small firms the opportunity to partner with MBA students to develop growth-oriented export business plans.

USC and UCLA are part of a larger regional group – the Los Angeles Regional Export Council  which was formed last November to assist L.A. firms that want to begin or expand exporting.

This council is a region-wide collaboration between Mayor Antonio Villaraigosa at City Hall, the L.A. Area Chamber of Commerce, and others, such as the Port of L.A., Los Angeles World Airports and regional business associations.

The Ports of Los Angeles and Long Beach play particularly critical roles in the movement of goods produced in L.A. to markets throughout the world, especially to Asia. Taken together, these two ports form the busiest complex in the Western Hemisphere, and the 6th busiest port complex in the world.

The L.A. story reveals why cities and metro areas power our economy: hyper-linked networks of private firms, universities, and public and nonprofit institutions that fertilize ideas, extend innovation, enhance competitiveness, and collaborate to catalyze economic growth for the entire region.

That leads to our 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 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 set a strong pro-trade platform for an Export Nation.

Three things are happening.

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

Over the past year, Brookings has worked closely with leaders in Los Angeles and three other metropolitan areas – Portland, Minneapolis-St. Paul and Syracuse – to invent and pilot actionable export plans. This activity has been done in close partnership with the International Trade Administration, and supported at the local level by the U.S. Commercial Services, the SBA and Ex-Im Bank.

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

Each metropolis does a market assessment of their unique export 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 exporting 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.

L.A.’s plan is distinctive in multiple respects. As I mentioned before, you have created a new Los Angeles Regional Export Council to identify and proactively support export-ready firms in your leading sectors. Your plan is smartly focused – targeted on boosting exports in 12 industries, including aerospace, computers, pharmaceuticals, professional services and film and television.

These export plans are not an anomaly. They are, in fact, the beginning of a new wave of local and metropolitan economic development. Several months ago, Mayor Villaraigosa, in his capacity as head of the U.S. Conference of Mayors, put out an Export Challenge to America’s cities and metros: design strategies that build from your special export strengths.

This is bottom-up economy shaping of the first order.

Having innovated at home, metros have the legitimacy to advocate nationally for federal and state policies and practices that boost metropolitan exports.

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.

California’s metros now have a partner at the state level with the governor’s new Office of Business and Economic Development. First order of business: create a California presence in China, beginning with Shanghai and Beijing.

This is a new day and a new attitude in California – but you still have some work to do.

Other states have been more aggressive in export promotion and are working more closely with their metro engines.

The Commonwealth of Pennsylvania has a Center for Trade Development with 22 foreign trade offices located throughout the world. In 2010, it assisted 1,350 companies generating $483 million in new export sales.

Closer to home, Washington State has a new State Export Initiative that helps clusters of firms build their export capacity. The goals are ambitious: increase the number of WA exporters by 30 percent over the next five years.

Beyond these platform setting efforts, Minnesota is working to align its resources and policies to the distinct export plan of Minneapolis-St. Paul. Incredibly, the state trade office was a lead organization in their metro export initiative.

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

Assume little happens this year—hopefully the reauthorization of the Ex-Im Bank, and maybe a short term national transportation bill.

When this election is over, U.S. metros should demand real action:

  • A new round of trade agreements that open up foreign markets to U.S. goods and services;
  • Fierce protection of intellectual property rights of American businesses around the world;   
  • A true national freight strategy that modernizes our air, rail, sea and land hubs and corridors

One other thing: metros should play an enormous role in the streamlining of federal trade agencies and services.

President Obama, for example, 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 DC.

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 organizations – with one set of export objectives, one set of performance metrics and a clear system of referring clients and sharing information.

There is one final piece to the export puzzle.

Beyond innovating locally and advocating nationally, U.S. metros are starting to 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 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 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, when historical trade routes flowed through cities, and deep trading relationships were forged between cities.

Between the dawn of the Common Era and the 15th Century, a flourishing Silk Road connected cities in East, South and Western Asia with their counterparts in the Mediterranean and European world as well as parts of North and East Africa. Each city had distinctive concentrations and specialties.

Cities in China traded silk, teas and porcelain. Cities in India traded spices, ivory, textiles and pepper. Cities in the Roman Empire exported gold, silver, glassware, wine, carpets and jewels

You get the lesson: like today, the city economies of the Ancient and Medieval worlds were distinct economies and places grew and flourished as they built on their special strengths and distinctive locations.


As we begin the Global Cities Initiative, let me end with this tantalizing prospect.

A “new silk road” is emerging as we enter what is clearly an “urban age” and “metropolitan century.”

Cities and metropolitan areas are not only the economic engines of nations, but the spatial backbone of global trade and exchange.

In a world where people and societies now live, operate, communicate and engage through networks, the “new silk road” is emerging as a super network of trading cities and metros that are economically collaborative, and globally fluent.

For the United States, the New Silk Road is a path back to shared prosperity—sane and sensible growth that works for companies, cities and consumers. For the world, it is a path towards reducing poverty and generating wealth.

Let us build it, nurture and extend it to all corners of the earth.

Slide Presentation by Bruce Katz: