The Role of Exports in the Next Economy

January 26, 2011

The following is an excerpt from an address by Bruce Katz to the Global Metro Summit 2010: Delivering the Next Economy in Chicago on December 8, 2010. To watch the full presentation, visit the Global Metro Summit event page. Katz also co-authored a paper with Emilia Istrate on exports strategies for states.

We must shape a different kind of economy, a next economy that is driven by exports, powered by low carbon, fueled by innovation, and rich with opportunity. This is a vision where we export more, we waste less, we innovate in what matters, we produce and deploy more of what we invent, and we ensure that the economy actually works for working families.

The next economy will be largely metropolitan in form and in function. Our major metro areas in this country generate nearly three-quarters of our gross domestic product. We may be nostalgic about small-town America, but it is metropolitan America that drives our national economy and determines our national prosperity.

So let me begin by offering a vision for the next American economy. And let’s begin with exports and our need to fully engage the world. 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) are expected to account for about a fifth of global GDP in 2010, surpassing the United States for the first time. By 2015, the BICs’ 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. And by 2030, the metro share will grow to 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 in the last year are almost exclusively located in Asia and Latin America. The 30 worst metro performers are nearly all located in Europe and the United States. The U.S. needs to reorient our economy to take advantage of this global demand.

In 2008, exports made up only 13 percent of the GDP of the United States, compared to 36 percent in China, 35 percent in Canada, and much higher levels in India, Japan, and the entire E.U.

The movement of freight in the United States is compromised, undermined by transport networks that are clogged and congested, and an infrastructure that everyone in this room knows is third-class. And culturally, Americans don’t get out much: Only about 28 percent of our citizens have a passport.

So can we get back into the exports game? We think the answer is, decidedly, “yes.” We still manufacture a range of advanced goods that the rest of the world wants: Spacecraft, aircraft, electrical machinery, high-precision surgical instruments, high-quality pharmaceutical products.

We already have a trade surplus in services, $152 billion in 2008 and we’re poised for a quantum leap in the export of high-value services. America’s potential for exports is hidden in plain sight and President Obama’s challenge to double exports in five years is exactly the kind of ambitious, far-reaching challenge we need at this moment. Research shows that firms in export-intense industries pay workers higher wages and are more likely to provide health and retirement benefits.

The next economy will be largely metropolitan in form and in function. This is true abroad, as I mentioned before, it is absolutely true here in the United States. This is the real heart of the American economy. One hundred metropolitan areas, that after decades of growth, constitute only 12 percent of our land mass but house two-thirds of our population, and generate three-quarters of our gross domestic product. These metros form a new economic geography, seamlessly enveloping cities and suburbs, exurbs and rural towns. And they pack a powerful punch.

Chicagoland is home to 67 percent of the population of this state, but you contribute 78 percent of your state’s GDP. Greater Seattle: Fifty-one percent of the state of Washington, but 69 percent of the economic output of that state. And metro areas generate the majority of GDP in 47 of the 50 states, including such “rural” states as Nebraska, Iowa, Kansas, and Arkansas.

Bottom line: There is no national American economy. Rather, the U.S. economy is a network of powerful metropolitan economies and metropolitan economies are powerful precisely because they bring together networks of large firms, small entrepreneurs, skilled labor, advanced research, colleges and schools, business associations, and yes, government. The top 100 metros together dominate our trade in goods and services, and given their edge in sectors like chemicals, computers, and consulting, their on the front lines of commerce with Brazil, India, and China.

The nation’s four largest exporting metros – New York, L.A., Chicago, Houston – super-size performers, exporting more than $50 billion apiece in 2008. Other major metros – Dallas, San Francisco, Boston, Philly, Detroit, Seattle – they’re also global players, exporting more than $24 billion apiece in 2008. Incredibly, these 10 large metros generated close to 30 percent of national exports in 2008. It’s not just about the large metros. As we see here, these 10 medium-sized metros are dependent on exports in ways that larger metro are not. Exports contribute more than 15 percent of gross metropolitan product in these economies.

The top 100 metros dominate exports for another good reason: They’re our logistical hubs. They concentrate the movement of people and goods by air, rail, and sea.

In short, the next economy will be shaped, determined, and delivered by metropolitan America.

Bruce Katz’s Full Speech: Delivering the Next Economy » (PDF)