The Great Recession: What Comes Next for America’s Metros

Thank you for the invitation to speak at this timely conference.

These are challenging, tumultuous times for the world.

The “Great Recession,” precipitated by reckless lending and a housing bubble in the United States, has dramatically disrupted the lives and livelihoods of hundreds of millions of people across the globe through lost jobs, foreclosed homes, diminished incomes, and vanished wealth. 

Today, I want to discuss the Great Recession from the perspective of place, namely the metropolitan areas in the United States that drive our national prosperity.

For several years, Brookings has offered a simple and urgent proposition: more than ever before, the ability of nations to grow and prosper is at risk unless their metropolitan areas are healthy and vital.

We have challenged our nation to fundamentally alter our mental map from a union of 50 states to a network of 363 highly connected, hyperlinked and economically integrated metropolitan areas.

The blunt tagline of our effort: The United States is a Metro Nation and it’s high time to start acting like one.

 So let me begin with an initial frame: the shape of the next U.S. economy and its future prosperity are slowly coming into view.

It appears increasingly likely that the next U.S. economy will be low carbon, innovation fueled, less driven by domestic consumption, and more export oriented.  This economy offers the kind of productive, inclusive, and sustainable growth that has eluded America for the past several decades.  

It may be ironic to be saying that in the midst of the worst economic downturn in 70 years.

In the last year, the U.S. unemployment rate rose almost 4 percentage points, and now stands at 9.8 percent.

The rate is 15.4 percent and 12.7 percent for African Americans and Hispanics respectively. There are nearly 15 million people unemployed—the highest number since records started being kept in 1948.  

The housing sector is battered.  As housing values have fallen nationwide, foreclosures have risen sharply due to a first wave of toxic subprime mortgages and now the ravages of unemployment and loss of income.

Goods production has taken a dramatic hit.  Incredibly, half of the workers in auto manufacturing have lost their jobs since 2000, with 330,000 jobs lost in the past two years alone. 

As a consequence, economists project that 41.3 million people are now living below the poverty level, compared to 31.5 million people in 2000.   The poverty rate has now hit 13.2% percent, and leading experts predict we will not see a return to 2007 levels for another decade.

The impact of the recession has varied considerably across and within metropolitan areas.  The housing collapse has been felt in the sun-drenched, bubble real estate economies such as Las Vegas, Nevada, Riverside, California, and Tampa, Florida.  The auto collapse has devastated the “motor metros” such as Detroit, Grand Rapids, and Dayton.  By contrast, metros like Austin, San Antonio, and Washington, D.C. have fared fairly well during this downturn, buoyed by strong health and education sectors and government.

So what comes next for the United States?

With the specter of global warming, the United States is making a slow transition to a low (or at least less) carbon economy.  To some extent, the narrow discussion of “green jobs” has obscured how profound a transition this is.  Shifting to low carbon will affect all aspects of our lives… the source of our energy, the cars we drive, the products we buy, the kinds of homes we live in, the shape and location of our communities, how we get from one place to another.

This transition to the next economy will demand and trigger a step change in innovation:

• in renewable energy technology—solar, wind, hydro, geothermal, ocean waves, bio mass;
• in state of the art infrastructure—smart grid, high speed rail, rapid bus, electric vehicles, clean coal.
• in green building practice and technology—sustainable design, sustainable construction materials, energy efficient appliances and approaches, water efficiency.All this innovation will catalyze new markets for private investment and drive job creation.  Alongside the low carbon transition will be a re-balancing of the American economy.

As Larry Summers, the head of the National Economic Council recently said, “The rebuilt American economy must be more export-oriented and less consumption oriented.”

He, of course, is being polite.  The last decade in particular saw a frenzy of consumption, driven by non-sustainable, speculative increases in housing values and reckless engineering of new loan products and secondary market vehicles. 

The U.S. economy went off course.  Consumer spending and residential investment stood at 75 percent of GDP in 2007, up from 67 percent in 1980.  Our trade deficit pre-recession rose from around $90 billion per quarter in 2000 to a high of $180 billion per quarter in late 2005 and early 2006. Financial services expanded from 10 percent of S&P 500 earnings in the 1980s to 45 percent today.

The next economy must return to a semblance of balance, of economic sanity, of making things, as well as providing services. 

 So here is my second proposition: the next economy will be metropolitan led.

The world may be “flat,” as Thomas Friedman has famously concluded, but the spatial reality of modern economies is their intense concentration in a relatively small number of places.

The top 100 metro areas pictured here keep growing and growing to the point where they now constitute 65 percent of our nation’s population and concentrate the workers and firms that fuel the economy.

Economists refer to this as agglomeration… because the assets that matter most to nations gather and strengthen disproportionately in urban and metropolitan places:

• Innovation, the new products, processes and business models that drive economy productivity and sustainable solutions.
• Human capital, the education and skills that further innovation and serve as the ticket to the middle class.
• Infrastructure, state of the art transportation, telecommunication and energy distribution systems that move people, goods and ideas quickly and efficiently.
• And quality places, that special mix of distinctive communities and responsible growth that is competitively wise, fiscally responsible and environmentally sustainable.

Innovation, human capital, infrastructure, and quality places.

These assets, and the people and firms that leverage them, come to ground in metro America.  Our top 100 metropolitan areas alone take up only 12 percent of our land mass, but harbor 2/3 of our population and generate 75 percent… 75 percent … of our gross domestic product.

More importantly, metros gather what matters and make an outsized contribution on each of the assets that drive prosperity—whether its indicators of innovation like patents or indicators of human capital like adults with graduate degrees or indicators of infrastructure like air cargo or indicators of quality place like public transit.

The cumulative impact of these assets is stunning.

Seattle houses only 51 percent of residents in the state of Washington, but generates 69 percent of the economic output of the state.

Chicago is home to 67 percent of the population of Illinois, but contributes 78 percent of that state’s GDP.

Metro areas generate the majority of gross domestic product in 44 of the 50 states, including such “rural” states as Iowa, Kansas, Nebraska and Arkansas.

The United States is, incontrovertibly, a Metro Nation.  The real question facing the nation is whether we begin to act like one and organize and invest in our assets to achieve productive, inclusive and sustainable growth. 

That leads to my final proposition: to realize the potential of the next economy, metros cannot go it alone.

The forces affecting metros—the movements of talent and capital or the drift of carbon emissions—take place at the global scale and have impacts and implications that transcend parochial borders.

A rapidly changing world demands that the federal government serve as a strategic, flexible and accountable partner so that metros can leverage their critical assets, address their central problems, and, in so doing, resolve our most pressing national challenges.

There are early signs that Barack Obama’s administration “gets” this new vision of Metro Policy, but there is still a long way to go.

At the paradigmatic level, the president talks about city and metropolitan areas in a modern way.  The White House website says bluntly that America’s “cities and metro areas are vital engines for economic growth”… and that federal policy must change to “reflect this new metropolitan reality.”

This is a sharp departure from traditional federal rhetoric, which for decades has treated cities as reservations of poverty and centers of hopeless decline.

Beyond a new conceptual frame, the federal government is beginning to put his money where his mouth is and make the kinds of metro friendly investments and policy reforms. 

In February, Congress enacted the president’s American Recovery and Reinvestment Act.  This Act, while imperfect, begins to make the kinds of game changing, market-shaping investments in the next economy that have been long deferred.

Tens of billions for advanced research and development in on bio medicine on clean energy

Tens of billions for investments in education innovation, in ways that leverage state and local reforms, particularly in troubled urban school districts.

Tens of billions for infrastructure investments, in high speed rail, the smart grid, health care information technology and water systems.

Tens of billions in spending and tax incentives for energy retrofits, inner city business development, community development, transit and brownfields

But the Recovery Act is just the beginning. 

Since February, the president has put forward a series of initiatives to catalyze multidimensional and multi-jurisdictional solutions to complex metro challenges.

To lead a step change in clean energy, the president has proposed a network of Energy Innovation Hubs to turn advanced research and development into commercially deployable materials, devices and systems.

To help remake the sprawling American landscape, the president has proposed a Sustainable Communities Initiative to develop integrated regional plans that link housing, transport, jobs and land use and create more compact and transit rich communities.

To help metros grow more inclusively, the president has promised a Choice Neighborhoods Initiative to couple the transformation of distressed public housing with systemic interventions on early childhood education and school reform.

These are early steps of course.  The Obama administration inherits a legacy government that is a shell of its former self, diminished in capacity, ill focused and ill informed.  Change in a government so large and complex will take time.

That makes it even more important that, as the Obama administration goes forward, it thinks not just outside the box but outside the nation.

China is building the most sophisticated network of ports and freight hubs in the world while trying to replicate the U.S. network of advanced research institutions and universities. 

Germany is strengthening the rail and telecommunication connections between major metropolitan areas like Berlin and Hamburg and Frankfurt and Munich …and the rest of their country. 

Spain has become a hothouse of alternative energy production in wind and solar power, spawning new specializations in finance, investment and legal fields.  

U.S. prosperity, in short, depends more than ever more on it ceasing to be an insular nation, but one that truly embraces the innovative brilliance of its trading partners.

Conclusion

Let me end where I began.

The United States enters a new century with a new geography and a new face.  

It is no longer Thomas Jefferson’s nation of rural hamlets and small towns, with economies that are internally focused and self reliant.

The U.S. challenge is to get comfortable in its new metropolitan skin and alter the way it governs so that metro communities can achieve their fullest potential as our engines of national prosperity.

The federal government, at a time of economic crisis, social challenge and unprecedented environmental pressure, can catalyze the move toward metropolitan governance and, in so doing, pave the way for decades of growth and development that is literally smart and sustainable.

We need a Metro Policy for a Metro Nation.