Going Global: The Future of Metro Economies

Editor’s Note: During the 56th Annual Sister Cities International Conference in Jacksonville, Amy Liu presented an assessment of the U.S. economy and how metro areas, specifically sister cities, can collaborate to boost exports and better connect with global markets, thus creating more jobs locally.

I am honored to be joining you for your 56th annual conference.

Much has changed in the world in the last 56 years. I have no doubt that Sister Cities has adapted nimbly to those changing times, strengthening relationships in new cities as sleeping markets rise and as civil and economic unrests demand different levels of diplomacy and partnership.

But I believe I have been invited here today to urge you to keep evolving. As the conference title states, it is a “new era.” And we must adjust accordingly.

First, jobs, jobs, jobs. The continued sluggishness of the U.S. and global economy makes this urgent. But, I will tell you that this is not just a flashing moment. Our nation and our regional economies face long-term structural challenges.

Second, global engagement. To thrive, our economy needs to be more globally integrated, not less. We must export and trade in higher volumes if we hope to accelerate innovation in American goods and services and grow jobs here at home.

Third, cities. We are in a global urban age. Not just because the majority of world inhabitants now live in cities. But because cities and metro areas are the engines of the global economy. If they prosper, our nation will prosper.

Thus, Sister Cities is uniquely positioned to act on these three critical moments in ways few organization are such situated. Your networks and relationships are vast. Your global intelligence is deep. Embracing economic exchanges will help your local economies—and even your organization—excel in the new global economic order.

Let me be clear, times have changed. The U.S. economy is undergoing a major economic restructuring which demands a structural response. The Great Recession was not the same as its predecessors. The job loss this time was steeper, the impact deeper, and the recovery slower because this was a structural recession.

The core structural problem: Nearly all of the incremental job growth over the last two decades came from non-tradable sectors, such as real estate, retail, and government. This was the eye-popping stat issued by Nobel economist Michael Spence. In short, we stopped innovating and producing jobs in value-added industries that create wealth, grow local industries, and make our American marketplace distinct from our competitors.

The other big structural shift: Economic growth is increasingly taking place outside the U.S.

In 2010, the combined global GDP of the BIC nations surpassed that of the U.S. for the first time, making up one-fifth of the world economy. That shift is expected to accelerate in the coming years while the U.S. share of global GDP is forecasted to stay the same.

The rise of the BICs is also in part a reflection of the rise of global metros. Rapid industrialization has been matched by rapid urbanization. More than half of the world’s population now lives in cities, and that share is expected to grow to 60 percent in 2030 and 70 percent by 2050.

With rapid urbanization comes the rise of the global middle class which is driving the growth of consumption. OECD predicts that, despite the recession, consumption is expected to rise from $21 trillion today to $31 trillion by 2020, mostly due to the growth in Asia and Latin America.

We view these trends as less a threat but a market opportunity.

Against this back drop, let me tell you what the data is telling us. The winners in the next economy will be those who strengthen global assets and tap new sources of aggregate demand.

The leaders in the next economy will innovate in manufacturing. While manufacturing has contracted as a share of the overall economy, it is becoming leaner and more advanced. Thus, manufacturing jobs are recovering faster than the economy as a whole, at 2.3 percent in the third quarter of last year compared to 1.4 percent nationally. The manufacturing sector has added about 350,000 jobs in the last two years.

For those who remain skeptical about U.S. competitive advantage in manufacturing, this is not the industry of yesterday. The U.S. is the 3rd largest manufacturing exporter in the world b/c manufacturing remains a critical part of our innovation cycle. U.S. manufacturing employs 35 percent of all of our scientists and engineers, invests 68 percent of all R&D; and generates 90 percent of all patents.

Leaders will also need to innovate in services. In fact, services, such as business consulting, education, architecture and planning, are the fastest growing segment of our export economy, and the U.S. has a trade surplus in services.

Within the services sector, expenditures of foreign students in U.S. colleges is growing steadily. We now have more than 720,000 international students studying in the United States, led by those from China, India and Korea. That sector represents $21.2 billion in U.S. service exports.

Leaders in the next economy will also invent and deploy clean economy goods and services.

Rapid urbanization worldwide has pushed up the global demand for environmentally friendly goods and services, such as energy efficient appliances and building technologies, smart grid, sustainable land use planning and infrastructure, and organic foods. We are meeting that demand. In fact the U.S. has a sizeable clean economy, representing 2.7 million jobs.

The upshot: U.S. clean economy products generated $54 billion in exports, two times more value per job than the typical U.S. export.

Additionally, the regions that prosper will be those that take advantage of global demand. The post-recession reality has made that more urgent.

According to our recent Global MetroMonitor, 90 percent of the fastest growing markets among the 200 largest world cities were located outside of the U.S., Western Europe, and earthquake-ravaged Japan.

In fact, there are more than 20 markets around the globe that did not experience this last recession or have already fully recovered—Shanghai, Shenzhen, Mumbai in Asia, Istanbul in Europe, and Santiago and Buenos Aires in Latin America.

Bottom line: If we are to grow, our firms must look outside of the U.S. and tap emerging markets and global consumption as a source of growth here at home.

And here is the evidence: Those firms who embraced international sales drove our economic recovery. Exports were responsible for 46 percent of U.S. GDP growth between 2010 and 2011—which is remarkable since exports make up only 13 percent of the GDP of the U.S.—compared to much higher shares in China, Canada, and the entire EU.

Further, that post-recession export growth generated 600,000 new jobs in 2010 alone.

Going global pays off too for small and mid-sized firms. Those manufacturers who exported saw their revenues grow, by 37 percent, through 2009, compared to non-exporters who saw their revenues decline by 7 percent.

Selling globally simply makes good business sense.

Second, it will be metro areas that will drive the transition to the next economy.

Metro areas are the engines of the global economy b/c they aggregate and integrate the very market assets that drive growth. Even though the 100 largest metro areas sit on just 12 percent of the nation’s land area, they dominate in innovation, by attracting 94 percent of the nation’s venture capital. They are the producers of our trade economy, generating 75 percent of all services exports. And they are the hubs of supply chains and goods movements, handling 82 percent of the nation’s air freight.

As a result of those assets, the 100 largest metro areas generate 75 percent of the nation’s GDP.

This is not some coastal phenomenon. In fact, metro areas generate the majority of economic output in 47 of the 50 states, including such traditionally “rural” states as Nebraska, Iowa, Kansas, and Arkansas.

And metro areas generate the majority of export activities in 30 out 50 states.

The sizeable role of agricultural products in exports explains why metro export share in states is smaller. But even here, our cities and metro areas play an important role, generating nearly one quarter of U.S. agricultural exports. This is not a surprise given that there are rural parts of many metro areas. In fact more than half of all rural residents in the U.S. live inside our metro areas.

And export activities do vary by metro area, reinforcing the importance of customized approaches to boosting exports and trade. For instance, here are three different metro areas, arrayed by size, Chicago, San Antonio, and here Jacksonville.

Let’s start with Chicago. It has by far the largest export volume at $53 billion, ranking it third in the nation among metros. But, looking down vertically to export growth, leaders here may not be happy that exports grew only modestly at 11.8 percent, ranking it only 34th nationally.

San Antonio, which has a strong sister cities and trade promotion effort, should be thrilled that it had the seventh fastest export growth post recession, at a rate of 15.5 percent. But the share of its economy that comes from trade is quite low, at only 7.9 percent, far below the national average of 13 percent, ranking it 79th nationally. That means there may be much more work to do to ensure that more parts of the economy are participating in global trade.

And Jacksonville, a port city, is handling tons of goods movements at its port. But it may be shipping everyone else’s goods globally, versus those goods made by firms and workers in Jacksonville. An export strategy here would help its own area firms contribute to greater export volume, and improving the share of the economy directly benefiting from trade, which currently ranks the metro area 90th in the nation in this regard.

The size of a metro area’s manufacturing base can explain some of the export trends there. With manufacturers contributing 61 percent of the nation’s export economy, the more manufacturers a region has, the more likely it can take advantage of global trade.

Chicago has a high number and share of manufacturing jobs, perhaps explaining its relatively high export volume and export intensity.

San Antonio and Jacksonville are large services economies with small shares made up of manufacturers.

Yet San Antonio’s surge in manufacturing jobs recently, ranking it 20th nationally, may explain some of the export growth trends as well.

The bottom line is that understanding your economic starting point is key to global economic success.

That leads me to my final point: The Sister Cities program and members can help metro economies better tap the benefits of global trade.

In my work and travels, I have heard an increasing drumbeat of requests for how local and regional leaders can work with their Sister Cities affiliates to coordinate and join up efforts to grow jobs and economic opportunity.

Where is the demand coming from? First, the president launched a national challenge to double exports in five years. And the president’s cabinet agencies, led by Commerce, have been working to forge partnerships with state, local, and corporate leaders to meet this national goal.

At the same time, Brookings launched the Metro Export Initiative. That included a signature report, “Export Nation,” that tracks the export performance of the 100 largest metro areas, and a collaboration with four metro areas—greater Los Angeles, Portland, Minneapolis-St Paul, and Syracuse/Central New York—each of which have formally launched their own metro export plans.

Those four metro export plans in turn inspired the U.S. Conference of Mayors to embrace global engagement as a key platform. Last year, as chair of USCM, Mayor Villaraigosa announced a metro export challenge, urging 25 cities to lead and adopt a metro export plan in the next 18 months.

So they did. This past April, Mayor Emanuel announced a plan to double exports in five years. One key partner in their export strategy? The Sister Cities program.

Last month, the entrepreneurial mayors of Louisville and Lexington, KY joined forces to announce an export plan for the Bluegrass Region. The goal: to increase by 50 percent the number of firms those are selling goods abroad.

And more local and regional efforts will come on line. The question is: Is Sister Cities prepared to be a partner?

So what is in a metro export plan? Let’s take a closer look at a few of the plans that have been launched.

What I like about these plans is that it exemplifies exactly why you cannot double exports nationally from the top but instead from the bottom up. While all four metro areas set a goal of doubling exports in five years, each resulted in very different strategies to meet that goal, building on their unique competitive advantages.

Simply, there is no one size fits all approach to doubling exports.

Portland: Two interesting strategies here. First, they learned that nearly two thirds of the region’s exports come from Intel and the computer/electronics sector. While the global company does not need export assistance, the regional leaders made it their top priority to ensure that Portland remains a competitive location for the computer electronics industry, perhaps by strengthening its supply chain, as the sector is a major source of export-related job growth there. This fourth strategy, “we build green cities,” an intentional approach to target and promote a suite of goods and services on a brand they are known for globally— sustainability—including sustainable land use, design and planning, EV technology, clean energy buses, and transit cars.

And these are the diverse groups involved in designing and executing the plan.

Syracuse, NY: A radically different economy, dominated by no Fortune 500 firms but small- and mid-sized firms. Radical under-exporters. Two strengths … very high service exports because of eds and meds, and close proximity to Canada. Embedded in the third strategy, is a goal to market quality health care at their top university hospitals to Canadians who want more choice and speed in catastrophic and emergency care.

In the next few weeks, Brookings will release a guide for leaders like yourselves on how you can produce your own export plans. It will include detailed 10 steps you can take and give you data tools and resources to make the task easier. Look for it on our website in coming weeks.
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For these plans to be effective requires the right leadership at the table. No single organization, like Sister Cities, can undertake an export strategy on their own. Only 1 percent of American firms sell a product or service abroad. To make inroads on global trade engagement requires a culture shift, as you well know, across many institutions and programs to break out of our historic insularity. Thus, government at all levels, businesses and regional economic development groups, universities and their international business programs, and ports who are also on front lines of goods movement— all these groups must be working together to change market behavior toward greater international sales and greater global fluency.

And while I’ve spent a lot of time talking about exports, exports is only one piece of a larger global economic strategy. To be truly effective on the global stage, we need to continue to innovate in goods and services. We need skilled workers to adopt and lead that innovation. We need to leverage our international students and immigrant entrepreneurs because they are naturally globally aware, fluent, and with ties to a foreign market. We certainly need two-way trade and investment. And we need a competitive air and freight infrastructure network. In short, we need a comprehensive approach and Sister Cities, and cities in general, can act in many ways to help their regional economies be more globally integrated.

Thus, there are other models and initiatives out there, beyond metro export plans, that exemplify the continuum of global economic interventions, many of which have been showcased at this conference. China-SF, launched by the city of San Francisco but is now a stand alone entity, is a city to city based program, with three offices in China that focuses on everything from policy innovation exchanges, university exchanges, FDI, and a new partnership with SF Made to link San Francisco manufacturers to Chinese markets.

USC has an MBA Exports Champion program that not only deploys talented business school students to foreign firms abroad, but to U.S. firms interested in exporting. These students help them conduct market research and help businesses integrate international sales into their short- and long-term business plans.

In closing, to move forward economically, we must go back to our historic roots, to a time when the global economy evolved before the rise of nation states when historical trade routes flowed through cities like the 15th century Silk Road that connected Asian cities and the silk, tea, and spices they produced to cities in Europe, the Mediterranean, and Africa.

Sister Cities could be our century’s new global ambassadors, forging closer economic ties and partnerships between world cities. This would be the fullest expression of your motto: Connect globally. Thrive Locally.

I hope you rise to that aspiration.

Thank you.