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On the Record

Global Cities Initiative: Ohio and the Next Economy

Bruce Katz

Editor’s Note: During a live webcast of “Going Global: Boosting Ohio’s Economic Future,” the second in a series of domestic and international forums being convened this year by the Global Cities Initiative, Bruce Katz delivered a presentation and remarks describing how U.S. cities can build on its local assets to boost exports and better connect with global markets by pursuing a different growth model—a “next economy” that is driven by exports and global engagement.

Thank you for that introduction James and your welcoming message President Gee.

It is a pleasure to be back in Columbus before this audience, and before those of you who are watching via the webcast. For both audiences, please feel free to tweet throughout the morning using the hash tag #globalcities. 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—11.2 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.

“The U.S. must pursue a different growth model, a “next economy” that is driven by exports and global engagement.”

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, Ohio and Columbus’ metropolitan manufacturing and export profile—what you produce, and what you trade—is highly distinct.

Finally, metros are driving innovation—in practice, in policy, in the formation of global trade links. The state of Ohio and its large metros like Columbus are a part of this innovative wave, with metropolitan strategies to strengthen their manufacturing base and 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 has a passport.

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 #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. 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 intensive 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.

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: the off- shoring of manufacturing was rooted in harsh economic realities—rock bottom wages in nations like China and the aggressive attraction and infrastructure strategies of foreign governments.

Yet 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. 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.

Ohio is a super-metro state—its top seven metropolitan areas house 71 percent of the state’s population and 78 percent of its GDP.

All 16 of this state’s metropolitan areas house 81 percent of the population, and generate 86 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. 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, including Youngstown, Toledo and Cleveland, 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, including Columbus, is implicated by the rapid rise in education exports and the attraction of foreign students. Boston leads with education providing 4.8 percent of their total exports.

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

A Wal-Mart outside Columbus is the same as a Wal-Mart outside Charlotte. Same design. Same footprint. Same goods. A housing subdivision outside of Denver is the same as one outside Detroit. But what makes Columbus special is different from what drives Charlotte or Denver or Detroit, or for that matter, Cleveland, Cincinnati, or Akron.

So let’s dig deeper into your export profile: Columbus is the 35th largest metro exporter, sending $7.9 billion in goods and services abroad in 2010. Your exports support more than 55,000 jobs. Your export intensity lags the nation—but this is typical of state capitals, where the government is unusually large.

Services make up about 39 percent of your exports, larger than the national share of 33 percent. Top sectors: business and professional services, travel and tourism, and financial services.

Despite this metro’s service intensity, however, manufacturing is a critical base for your global competitiveness, contributing more than 60 percent of metro exports. Top sectors: transportation equipment, chemicals and machinery.

Today, we are releasing a report and interactive data platform that unveils the geography of manufacturing in the United States, and the unique production profile of each metropolitan area. I’d like to thank JPMorgan Chase, as well as Alcoa and the Surdna Foundation, for their support of this work.

As you see here, each of Ohio’s metros has distinct manufacturing specialties.

Digging into Columbus, we find a metro with more than 63,000 manufacturing jobs—29th among the top 100 metros. As with exports, the large services sector in Columbus results in lower manufacturing intensity, but we do find manufacturing in Columbus growing faster than the national average in the wake of the recession.

The metro’s top five manufacturing sectors make up 61 percent of production employment.

The Ohio 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 metropolitan business plans that exploit their distinctive competitive advantages in the global economy.

Over the past year, 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.

LA’s plan is distinctive in multiple respects. They have created 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.

Northeast Ohio’s plan is also unique. It 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.

As with Los Angeles, the Northeast Ohio plan is not shelf ware. Firms are already engaged and the early returns for firm restructuring and job growth are very positive. I know Brad Whitehead from the Fund for Economic Future is here to share their story.

But there are other efforts underway in Ohio. I want to commend the Columbus Council on World Affairs, with support from Columbus2020, the Columbus Foundation and the Mid-Ohio Regional Planning Commission, for positioning this region for a new wave of global engagement.

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.

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—reducing their focus on promoting exports and attracting foreign direct investment.

Pennsylvania and Florida are two exceptions.

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.

And perhaps most similar to the effort underway in this state is Enterprise Florida, a public-private corporation with a regional focus for growing exports and creating jobs, whose export assistance and business development efforts added $3 billion to state economic output in 2011.

With the formation of JobsOhio, this state is getting back in the game.

The Third Frontier Fund, replenished through a $700 million bond referendum in 2010, is already considered a model for state support for technological innovation.

Ohio’s network of Edison Technology Centers is also considered first in class … and our trip to the Edison Welding Institute yesterday showed how these centers are placing Ohio on the global map.

And while the JobsOhio effort is still early, their focus on attracting foreign direct investment and empowering the distinct regional economies of state is solid and sound.

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

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

When this election is over … U.S. metros and their states should demand real action:

o A new round of trade agreements that open up foreign markets to U.S. goods and services;

o Fierce protection of intellectual property rights of American businesses around the world; and

o A true national freight strategy that modernizes our air, rail, sea and land hubs and corridors.

One other thing: Metros and their states should play a key 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 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.

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 Cleveland, 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.

Conclusion

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.

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