Wednesday, June 30, 2010

Why Recruiting Solar Panel Manufacturers is a Bad Idea

When Evergreen Solar (ESLR) announced plans to build a 160 Megawatt solar panel factory in Devens, MA, the state bent over and handed over $58 million in incentives and credits. The facility required $430 million in capital construction costs, and produced about 580 full-time jobs, or about $800,000 in capital outlay per operating job, a level of spending per job created that's common in modern manufacturing across all industries

But 18 months after opening the facility, the company announced it was sending some of those jobs to China. And with competitors First Solar (FSLR) and SunPower (SPWRA) expanding in Malaysia and the Philippines, reducing labor costs was a business requirement for Evergreen. But it brings the value of the incentives into question.

I've covered alternative energy manufacturing in my consulting business, and strongly believe that no sensible region should be offering large recruitment packages to solar manufacturers. In spite of all the green jobs hype they can generate for your city, they cannot compete with coal and natural gas prices without lowering labor costs and increasing productivity. This means any job they create domestically is setup to last six months. Moreover, they hire fewer finance, marketing, and managerial staff than most software or computer hardware companies. Hopefully, other states will learn from Massachusetts' mistake with Evergreen Solar.

Tuesday, June 29, 2010

Denver Office Owners Offering Up to 10 Months Free Rent

Denver has been one of the healthier regions during the recessions. Its metro unemployment rate of 7.9% is two points below the national average, and that's excluding the college-fueled employment in nearby Boulder. Additionally, over 25,000 of its jobs come from non-health, non-retail locally headquartered companies like Level 3, Echostar, Qwest, and Coors.

But its office market is slumping like any other, with office landlords offering major concessions, including nearly a year's worth of free rent. And according to a PriceWaterhouseCoopers report, cap rates (building operating income/price paid to buy the building) rose 6/10ths of percent to 8.4%, meaning prices for office properties are still dropping relative to the income they produce.

With a healthy market like Denver struggling to fill its space, it's likely going to be a buyer's market for office space for years. It's also a good chance for downtowns to entice tenants who might otherwise head to the suburbs for cheap rents.

One Reason Why DC Will Keep Rolling

Was just checking out productivity ratios at defense contractors, and they're remarkably low. Lockheed Martin, which gets 85% of its business from the U.S. government, does $45 billion in sales with 140,000 workers, or about $320,000 per employee. Ford does $124 billion in annual sales with 198,000 workers, or over $600,000 per employee.

For all the bailouts, union involvement, and other problems in the auto industry, they're lean and mean compared to the companies the Department of Defense does business with.

Monday, June 28, 2010

New Chattanooga Factory to Create Massive Turbines, but Few Jobs

GE competitor Alstom is building a plant in Chattanooga that will manufacture large, 700-1800 Megawatt, steam and gas turbines for electric power plants.  The facility will require 350 full-time workers once it goes in service, as well as $300 million in capital investment, or about $850,000 per job.    This is about 30% higher than the state-of-the-art auto factory Toyota's building in Blue Springs, Mississippi, but reflects the trend in manufacturing of spending more and more on construction, and needing fewer people once the plant is in service.  

In a future post, I'll lay this out in detail, but the capital cost per job created in most manufacturing sectors is rising much faster than inflation, which means if you recruit manufacturing facilities, much of the economic impact is front-loaded.   It also means you need a limited supply of skilled labor, because even with an existing presence in the Chattanooga area, this plant won't be enough to put Alstom in the top 15 employers in that city, which is attractive to turbine makers because of the large Tennessee Valley Authority facility there.

The usual chants about educated labor and multiplier effects came up with the plant's announcement, but with just 350 people, it's not like they'll  need an army of electrical or mechanical engineers.   And with Alstom being a foreign company, many of the profits will be going to France, not recirculated in the region.   In all, the plant's certainly a good thing for Chattanooga, but the economic impact is likely to be far less than many are hoping.

Saturday, June 26, 2010

Indiana Universities Win Award for Creating Economic Development Plan

Indiana University and Purdue recently won an award from the Center for Community and Economic Research for their joint economic development efforts in Indiana.

The two universities econ dev joint venture received the prize for their research effort, entitled "Crossing the Next Regional Frontier: Information and Analytics Linking Regional Competitiveness to Investment in a Knowledge-Based Economy". While their ideas might impress academics, I don't think they'll impress prospective employers.

Now Indiana as a whole is generally strong in terms of economic matters, and I don't think one misguided effort will change that much. However, the "knowledge-based economy", which existed in the 90s and 2000s, could be called that because it was defined by the fact that knowledge was a scarce resource over that period. While it still might be in certain industries, it is now being overshadowed by the even more scarce resource of face-to-face contact, which has developed because it's so cheap to communicate remotely. Compared to ultra-cheap communications, it's so timely and expensive now to meet face-to-face, which is why all the fastest job growing job sectors, from nursing to teaching to social work, depend on face-to-face contact. When knowledge was the dominant scarce resource 12 years ago, the fastest job growing sectors were electrical engineering, computer programming, and other technical positions. That's all changed. Yet many econ dev professionals don't seem to get this, and you don't need to look any further than basic Department of Labor data to see it.

People, especially those developing local economies, really need to get that techie-finance economy of 1995-2009 is gone. Spending $400,000 for every biotech job created makes little sense, especially when you can spend nothing and develop your own small businesses.

Friday, June 25, 2010

Robotic Catheters - Coming to a Hospital Near You?

I find medical robotics interesting, because unlike industrial robots, they often don't increase productivity in a significant way, but they can increase quality of care. A good example is Intuitive Surgical's (NASDAQ:ISRG) da Vinci system (I like putting NASDAQ tickers in parentheses, makes me feel like I'm writing for The Red Herring in 1999). Da Vinci uses robotic arms to improve on laparoscopic procedures that otherwise require the surgeon to look up at a TV monitor. While some argue this system improves quality of care, the interesting thing economically is that increases the time needed to complete the operation. So in that regard, it actually makes the doctor less productive. If robots in auto plants reduced human productivity, they'd be melted on site, and car company executives would probably say the the same things about them that they did about Matt Millen when he was the Lions GM.

Now, Hansen Medical (NASDAQ:HNSN), a Silicon Valley company like Intuitive Surgical, is developing robots that can reduce the trauma of catheterization for heart patients. While they give a lot of clever, scientific explanations, basically what happens is that the robot sticks the tubes in your chest, not a person. But in terms of surgical operations, the emphasis is on improved quality of care, not higher doctor or nurse productivity. But we'll have to wait and see how this well this really works, these particular surgical robots have not been approved by the FDA.

Lambda Lambda Lambda and Omega Mu

USA Today has a story today on how college towns have done better than many places during the recession.   One of the themes of the article is that colleges are playing a greater role in regional economic development.

Over the last couple of years, I've been to college towns like Auburn, Alabama and Lawrence, Kansas, and they are appealing places.  But I also grew up around a college town - New Haven, CT - that is hardly a model of economic development, in spite of getting huge sums of research grants through Yale.   I also know a lot of people here in the DC area who moved from Syracuse, because it provided so little in the way of jobs in spite of its large university.

I think USA Today would have better off saying smaller towns with land grant universities are doing ok during the recession, because college cities that have lost manufacturing jobs are not.

It's All Relative When You Border Michigan

Indiana Commerce Secretary Mitch Roob has been put on the defensive by his legislature regarding IEDC (Indiana Economic Development Corporation) tax credits. A particular issue is the 42 failed projects awarded tax breaks totaling about $10.3 million since 1994, for which the state is pursuing collections.

What's funny about this is the stark contrast to the circus in neighboring Michigan. Indiana's fretting over a program that over 16 years, and over 1,000 projects, has given $10.3 million in tax credits to 42 initiatives that didn't create the jobs expected. Contrast that to Jennifer Granholm, who gave away $9 million in a single project to a felon, and had a press conference to showcase the thing.

Whoever Michigan's next governor is, he should check out what's going on over his southern border. The fiscal discipline alone could be enough to entice many employers.

Thursday, June 24, 2010

People in Space Want Your Input

They're losing their jobs with the end of the Space Shuttle Program.   In addition to getting a nice check from the Federal Government, Florida's Space Coast is seeking input on what exactly they're supposed to do for jobs now.  Maybe turn the launch pad into an MTV beach house?   How about drivers for a franchise that sells Astronaut Ice Cream?   Got any better ideas?  You can share them with the Space Coast Task Force.

Nashville - Below Average in Patents, Above Average in Income Growth

Encouraging signs coming out of the Music City. Specifically, it's avoiding the temptation to join the PhD or patent rat race, and is instead trying to build on its unique characteristics. Moreover, the city is playing down the buzzword industries that many other places are desperately chasing after. This is so basic it shouldn't be news, but it is when everything in economic development right now is a blur of biotech/greentech sameness.

I mention patents and PhDs specifically, because Nashville has very few of them. In the research done with Market Street consultants to update its economic development plan, the city found it had just 1.5 patents per 10,000 employees. Not only was this way below Austin, which has 27.2 per 10,000 employees, its below the national average of 6.4 per 10,000. Yet at the same time, the city's wage growth and per capita income growth rates have soared past national averages, as well as past cities like Austin, even when factoring out the recessionary impacts of the last year.

Nashville still looks likely to bump into a few of the same life sciences, green jobs roadblocks that have stopped other cities from defining distinct messages. However, its plan to focus on existing health care, manufacturing, and music industries show a much stronger willingness to build on its own strengths than the follow-the-fad strategies being pursued by so many other cities.

Wednesday, June 23, 2010

Jennifer Granholm - Tax Credits for Embezzlers

Another sad story for Michigan economic development involving Jennifer Granholm. Michigan is poised for a rebound in job growth just from her departure. Her lame, expensive attempts to attract "cool" companies to "cool cities" have backfired and made the state look even worse than it really is.

Now that she's on her way out, a GOP candidate says its time to tear down the Michigan Econ Dev Corporation, or MEDC, which has handed out taxpayer money to new employers, just so Granholm can hype a 120 job showcase project for every 10,000 jobs that leave her state. But a recent story from Michigan Capital Confidential mentions something even worse than her embarrassing, taxpayer-funded "Creating Cool" conference.

In March, it was revealed that the MEDC had offered a $9.1 million deal to a company run by a parolee who is a convicted embezzler (and who has since been locked up again for another fraud charge). Gov. Jennifer Granholm had held a press conference to praise the deal, with the embezzler on the stage with her.

She is so inept. Whether replaced by a Democrat or Republican, Michigan will undoubtedly show signs of improvement once she's gone.

Looks Like Green Jobs Didn't Make the List

Was just re-reading the WSJ story about the Dept of Labor's Occupational Handbook, and noticed not a single "green" job made the list of top 10 growth professions. I've covered solar and wind manufacturing in my consulting business, and this doesn't surprise me.

Just like IT, greentech is subject to tremendous productivity gains and outsourcing, which stunt employment growth. And in terms of green electricity generation, over 90% of the jobs are in building the power plants, not running them.

A few months ago, I served as a business plan judge for green startups here in the DC area, and many of the ideas were centered on building small businesses, including one I gave high marks - an energy efficient gym. But very few of these ideas are the sorts of companies that will ever grow large enough to justify a major venture investment.

The hardest part of my work in solar and wind has been trying to help MBAs and college grads who want to work for manufacturers, because there are so few finance and marketing jobs at these places. Even the rapidly growing, successful ones don't hire like software/media/IT hardware startups. First Solar, for example, grew from just $100 million in sales in 2006, to over $2 billion last year. But 80% of its labor force works in the factory. It has just 800 people working in finance, engineering, management, administration, and marketing, which works out to just one office worker for every $2.5 million in revenue. Cisco, on the other hand, has about one office worker for every $500,000 in revenue.

Greentech is a growth industry, but not much of a jobs producer. The small environmental businesses offer more promise for regions looking to grow employment in this area.

Put the Urban Prairie on Hold, Detroit's Population is Stabilizing

One of the big debates in urban planning has surrounded the transformation of abandoned Detroit neighborhoods into urban prairies, with some wanting it to continue, while others seeing it as giving up.

Well, the debate could be dating itself as Detroit is showing signs of population stabilization. According to new Census data, the city lost just 1,713 people last year, a far cry from the 9,000 a year it was losing in the early 2000s. In fact, most large cities, which were still losing people to the suburbs ten years ago, are now growing. Even Oakland's growing again, with 6,000 net new residents bringing its 2009 population to 409,000.

Among cities with professional sports teams, most are growing now, which they weren't in the early 2000s. Even decliners, like Buffalo and Pittsburgh, are now losing fewer than 1,000 people per year. The I-95 cities are all growing about 1% a year, except for Baltimore, which was the only professional sports team city outside the Great Lakes and Midwest to lose population. Economically, that city continues to resemble a midwestern factory town, and is now unsuccessfully trying to market itself as an urban suburb of DC. DC itself grew nearly 2% a year, as did close-in urban suburbs Arlington and Alexandria, VA.

West of I-75, the only pro sports city in the Midwest losing population is St. Louis, which essentially broke-even, losing just 143 people. This is a big reversal from 5-6 years ago for many of these cities. Chicago, for example, lost 18,000 people in 2004, but added 21,000 in 2009.

Overall, U.S. cities are showing tremendous signs of improving health, while many obvious problems remain. As most large places have started growing for the first time in six decades, there's a good chance many of the policy debates surrounding depopulation could fade over the next ten years.

Tuesday, June 22, 2010

San Mateo County Expects to Hit 2007 Job Levels in 2015

San Mateo, the northern (and largely software) half of Silicon Valley, expects to get back to its 2007 job count by 2015. The county economic development agency, which decided to buy a vowel when it chose the acronym of SAMCEDA (San Mateo County Econ Dev Association), sees a slow recovery over the next few years.

So in this county, which is home to Oracle and Genentech, is a stone's throw from Google, Yahoo, and Intel HQ, and receives 10-12% of all venture capital invested domestically, what do you expect are the growth industries? Well, according to SAMCEDA, it's professional and technical services, retail trade, government, hospitality, health care, social assistance and manufacturing. Basically, the leading growth professions in the county that sits between San Francisco and San Jose are the same as everywhere else.

I've said that for just about every region outside of Silicon Valley, Boston, and maybe Austin/Seattle, that VC is no longer part of any sensible economic development strategy. And if you're Cleveland, or KC, or Lansing, and you wonder whether this applies to you, just look at VC's increasingly niche role in the middle of the San Francisco peninsula.

Can a Bus Driver Work in a ROWE? What about a Cleaning Person?

Reading Dan Pink's new book, Drive. For the most part, it's a great read, and has a lot of excellent insights on worker motivation.

However, one aspect of his analysis that bothers me is the same thing I see in many urban planning books - the tendency to focus on jobs and activities done by people with advanced educations and money. In particular, he talks up the benefits of a ROWE, or Results Oriented Worker Environment, where workers just need to get their tasks done, but show up whenever they want. He uses a lot of examples from the software and high-tech industries, where ROWEs are common, and does a good job analyzing the productivity gains from ROWEs.

However, the whole discussion reminds me of the 2007 Onion article "Manny Ramirez Asks Red Sox If He Can Work From Home". Most people have to be at work to do their work. The software developers in the offices Dan describes might be able to show up whenever they want, but I doubt the people cleaning their offices can. Nor can the road maintenance crews taking care of the streets that get these ROWE workers to their offices, or the security guards watching the building when the ROWE workers aren't there, and are out enjoying their autonomy.

This ROWE discussion reminded me of all the urban planning books that fawn over the 100,000 rider-a-day Portland light rail system, but never mention the 1,000,000 rider-a-day Los Angeles bus system. Moreover, the fastest growing professions in this country, from nursing to athletic training to skin care specialists (#8 according to the Dept of Labor) are defined by the now scarce resource of face-to-face contact.

So the cleaning people, bus drivers, and retail workers can't work in a ROWE, and there's more people doing these jobs than there are working at Silicon Valley software companies. Would be nice to see people writing urban planning, economic development, and business books spending a little less time covering the work "cool" people do, and focusing instead on the work most people do.

Monday, June 21, 2010

Farm Fresh Fun

I've come to believe that the best city and state promotional campaigns don't come from cheesy economic development brochures, but homemade YouTube videos.   Now I've made the point here many times that with all the ridiculous talk of being "cool", it seems like the economic development industry is being run by teenage girls.   Well, today I found out I was right!

More informative and entertaining than anything put out the Positively Minnesota campaign from that state's Department of Employment and Economic Development is a video called "Minnesota Gurls", created by three of the state's teenagers.   A parody of Katy Perry and Snoop Dogg's "California Gurls", it's catching up to the original song's YouTube views.

Minnesota girls
Our Spam in fry-able
Farm fresh fun we’re workin’ every plot 

Obama Allocating $100 million of NASA Budget to Economic Development

I used to cover the satellite industry, and can assure you if there's one industry that's not going to be a jobs powerhouse the next 10 years, it's space. And in response to the coming end of the Space Shuttle program, President Obama is allocating $100 million of the FY2011 NASA budget to help Florida, Alabama, and Texas workers associated with the 80s-era initiative find new jobs.

NASA is often the repository of odd Presidential aspirations, George W. Bush wanted to put a man on Mars, and not to be outdone by bizarre ideas, Obama wants to send a man to an Asteroid.

While I don't think it's likely we'll get a man on an Asteroid anytime soon, we can shoot Asteroids like we did in the 80s (Atari version) at this online gaming site.

Skin Care Specialist Now a Top 10 Growth Profession

Mundane personal service jobs are becoming some of the fastest growing professions. In the past, I've written about some of the "cool" and "creative" jobs defining the future, such as nail care, social work, and teaching. Employment in these sectors correlates more strongly to having a vagina than to having an advanced degree, but they are way too boring for any urban pundit to start writing about.

While I don't think its author is going to get a promotional poster at Barnes & Noble, the Department of Labor's Occupational Outlook Handbook has some interesting findings. It ranks the top 10 growth professions for the next 8 years, and coming in at #8 - skin care specialist. Yes, for all the hype about "creative classes", "knowledge workers", and other sorts of nonsense, skin care is now a leading growth profession.

In addition to skin care, athletic trainer makes the list, as does home health care aide. Even the engineering jobs are mostly angled towards people and medicine, as opposed to faster computers or communications. Only 2 of the top 10 professions have anything to do with finance or IT. Makes me wonder if Jennifer Granholm will invite a skin care professional to speak at the next Michigan "creating cool" conference.

Economic Development Executives Are Starting to Sound Like 15 Year Old Girls

In economic development, the let's-call-our-cities "cool" nonsense has gotten so bad, I'm going to make this a regular feature. I'll provide examples of silly, embarrassing economic development efforts that were actually created by adults, but sound like they came from a 10th grade social studies project.

And no better place to start this off than with Michigan's "cool cities", an initiative which shows what happens when you combine the strategies used by 8th graders to become more popular, with the recommendations of a Richard Florida book. Jennifer Granholm, the queen of job destruction, won't let up, and actually held a "creating cool" conference. It's not clear from the press release if it was held before or after cheerleading practice.

San Francisco Getting Tech Firms to Move Back into the City

Interesting story in the SF Chronicle about Silicon Valley companies moving into San Francisco. Much of this is the result of lower rents, especially in the South of Market neighborhood, as well as Twitter staying in the city, and not heading down the 101 like other big name Bay Area companies such as Google, Yahoo, Oracle, Intel, etc.

Most of these companies are consumer application developers, the hardware and semiconductor designers aren't leaving Santa Clara anytime soon.

Sunday, June 20, 2010

Omaha Giddy Over Economic Development From Nebraska's Shift to Big 10 Conference

Simply irrational. Some Omaha boosters think the University of Nebraska's shift from the Big 12 to Big 10 will somehow make the town a hot place for young grads. I'm not sure if this is more disturbing than it is wrong.

Omaha has done far better than many places the last few years, and none of it has had anything to do with attracting a lot of young "knowledge workers". While it is not known for being a hotspot for recent grads, its current metro unemployment rate of 5.5% is one of the lowest in the country, and is about half of what Portland's is. This nonsense that economic development is about being "cool" or "creative" just won't stop, and there's no data out there that shows a strong presence of recent grads helps or hurts a regional economy. Moreover, Omaha's largest employer is Offutt Air Force base, which brings far more young people to town than changing football conferences ever will.

Saturday, June 19, 2010

Top 10 Regions for Biotech

Most industries with high fixed costs and low variable costs tend to cluster in a handful of areas, while those with low fixed costs and high variable costs can go anywhere. An example is semiconductors, an industry which is heavily concentrated in a few places, while technology consultants can be found just about anyplace.

As a high fixed cost/low variable cost industry, biotech is clustering too. I don't like using NAICS codes to determine industry concentrations, because they're often slow to adjust to new company categories, so to figure out the top 10 regions for biotech, I did some searches for biotech and biotechnology jobs. Results are below, with each region's share of total U.S. biotech job openings. Now, in the spirit of the recent NCAA conference shifts, where "10" can mean 11, 12, 14, or whatever makes sense for the TV deal, I've actually included the top 12 regions, because there is a big dropoff after #12, with region after #12 accounting for more than 1% of U.S. biotech positions. Sales jobs, many of which are for remote offices across the country, are excluded.

1. Boston 19.25%
2. San Francisco/San Jose 12.85%
3. NY/NJ 8.90%
4. Philadelphia 7.24%
5. Washington, DC 5.99%
6. Los Angeles/Orange County 5.39%
7. San Diego 3.83%
8. Chicago 3.03%
9. Raleigh/Durham 2.53%
10. Indianapolis 1.80%
11. Seattle 1.48%
12. Minneapolis 1.47%

These 12 regions account for 74% of all biotech openings. The clustering is very strong, almost as strong as semiconductors, where the SF Bay Area comes in at close to 30% of all national job listings for that industry.

U.S. Economic Development Agency Offering Grants for Regional Innovation Clusters

One of the problems of the "tech" economy right now is that there are hundreds of cities, counties, and states fighting to be in the top 10 places for greentech and biotech. This has done a lot for photographers who sell stock photos of lab coat techs starting at test tubes, but has done little for the communities trying to get their message to stand out.

The U.S. Economic Development Agency has a plan that will help counter this, and is now offering grants to help municipalities and states identify some of their unique strengths through its Regional Innovation Clusters Mapping Project. This is a great opportunity for localities with blurred messages about "life sciences" to develop a more precise message that will resonate with prospective employers.

Friday, June 18, 2010

200,000 Robots in U.S. Factories Now

And robot sales are picking up according to the Robotics Industry Association. I also like how they've rebranded their annual conference "Automate", much better than the "International Robots, Vision & Motion Control Show"

Green Energy Power Plants - Jobs are in Construction, not Production

Under tremendous pressure to reduce costs to get to parity with grid electricity, green manufacturing and production are being done highly efficiently, with much of the work going to semi-skilled construction laborers, not change-the-world college graduates. eSolar and Brightsource Energy are building solar thermal power plants in the Desert Southwest, most of which have about an 11:1 construction to operating job ratio. Brightsource's Ivanpah plant, which will have a rated capacity of 392 MW, will produce nearly 1,000 construction jobs, but just 86 permanent jobs. eSolar's smaller 5 MW Sierra SunTower plant created 250 construction jobs, but just 21 permanent jobs.

The Caithness 845 MW wind farm in Oregon will have just 35 permanent workers, and 400 construction jobs, similar to the 11:1 construction-operating ratio seen with solar thermal. One worker per 24 MW is about 1/4th less than a typical coal-fired plant. While it helps make wind power cheaper, it also shows how much of the opportunity with greentech will be in construction, which is not unlike data centers and other emerging technology areas. They are so automated and efficient that once they are up and running, they are better at creating wealth than jobs.

Toyota Restarting Construction on Mississippi Plant - $650,000 in capital costs per job

After halting work when the economy crashed in 2008, Toyota is resuming work on its $1.3 billion Corolla and Prius plant in Blue Springs, MS, which is near Tupelo, and about 90 minutes southeast of Memphis. In addition to right-to-work laws, one reason it chose Blue Springs over its now closed Fremont, CA plant is access to parts suppliers in the nearby I-20 corridor, which has become a modern version of Detroit.

With 2,000 employees on-site and $1.3 billion in capital needed to build the plant, it'll be spending $650,000 in capital per job created. A little less than the $1 million in capital per new job Dow Kokam will be spending on its new Michigan battery plant, but a strong indication nonetheless of how modern manufacturing often creates more economic activity in construction than in production.

Face-to-Face Contact is Becoming a Scarce Resouce, Which is Good for Cities

When I submit consulting proposals now, I always include a section on what the face-to-face component will be. The reason I'm doing this is because I've seen how with cheap communications, the value of physical contact has grown. On only one occasion can I recall flying out to meet a client or prospective client being a complete waste of time. If you look at the industries with strong job prospects, like nursing, teaching, etc, they all depend on people interacting directly with others.

Cities are doing much better now than they were 30 years ago, when face-to-face contact wasn't such a scarce resource, but one minute on a long distance phone call cost more than a postage stamp. So rather than throwing out hundreds of millions of dollars to recruit some "cool" biotech lab, perhaps cities should be encouraging more interaction among their own residents.

Get on the Bus

Interesting story over at NAC on curbside buses. I've seen them here in DC, but I usually fly/train to NYC, and I never realized how they make money by avoiding the bus station gate fees, and keep customers around by avoiding the bus station altogether.

The Buses Are Coming

Tuesday, June 15, 2010

I Saw The Sign

Remember that South Park episode where they find the Ice Man guy who's been frozen since 1996? In order to re-orient him they have to play 1996 music, including the painfully bad Ace of Base hit "The Sign". I think the Ice Man must have worked in Economic Development, because so much of the industry is acting like it's still 1996.

There's still a lot of talk about "tech" jobs, venture capital, and of course, "knowledge workers". Somebody is going to have do something to kill that terrible term along with the equally awful "human capital". Just hearing these things makes me feel like I'm back in 1996 in a product marketing meeting.

In the 2010s, with female-dominated professions like nursing, teaching, and social work continuing to grow, having a vagina will be a greater advantage for many workers than having an advanced education.

One of the things I read many times back in the 90s was how species that survive aren't the strongest, but the most adaptable. Think Alvin Toffler or some other futurist pundit came up with that. Well, if that's true, then it's time to bring economic development into the 2010s, and move it past the world of venture capital, overeducated slackers riding light rail trains in Portland, and panicking that if your city doesn't promote itself as some sort of "tech" hub, it will be falling behind. Computers have made many companies exceptionally productive, and automated and outsourced so many employment opportunities. As a result, many tech sectors, including specialties within greentech and biotech, hold as much promise for future job creation as

Where the Jobs Are – DC's Maryland Suburbs and Portland

Going to try and make this a regular feature. Part of the problem with economic development hype about biotech, greentech, whatever tech is that it obscures reality. So what I'll do here is run some searches, and report back what employers are actually hiring for, not what's being promoted in economic development brochures.

First stop, the 20814 zip code in Bethesda, MD, home to NIH, which is the leading funder of medical research in the country, investing about $15 billion annually in research grants.

Expect a big biotech showing here? Within 10 miles, 3,322 jobs mentioning “SQL Server”, 165 mentioning “biotech”. So in NIH's backyard, back office database skills are in greater demand than biotech by a 20:1 ratio.

10 miles within 20814, "Nurse" gets you 2,949 job listings, or about 18x biotech. 587 listings for “Social Worker” in that same search, or about 3.5x biotech.

Let's move it up a few miles to Gaithersburg, MD 20878 – MedImmune headquarters, do a 10 mile radius, and see what we get.

SQL Server drops to 420, but biotech's still just 143. “Nurse” gets you 390, or about 2.5x biotech – in MedImmune's hometown.

Head across the country to Portland, 97201. They claim to be the leader in green technologies, so let's do a job search within 10 miles of the downtown zip code for “green”. 198 results. Take it out 25 miles, and you get 375. “Solar” at 25 miles gets you 164, “wind” 111. In the same geography, “Nurse” produces 1,678 listings. So in the alleged center for green employment, employers ask for a nurse 5x more frequently than they mention the word green, and 10x more frequently than they mention solar.

Monday, June 14, 2010

The Difference Between Seattle and Portland

Portland has recently launched a campaign to attract jobs, so that all the highly educated coffee shop workers in the Pearl District might have a chance of using their degrees sometime soon.

While urban planners have not stopped fawning over its light rail system since the first spike went in the ground, Metro Portland currently has 10.5% unemployment, while regional rival Seattle is at 8.2%. One reason Seattle is doing better economically is because it's home to industries that run trade surpluses - particularly business software and aerospace, neither of which has a big presence in Portland.

One of the biggest sources of job losses for many regions isn't a glossy marketing brochure from a competing state's Econ Dev Authority, but foreign competition. Rubber, steel, autos are sectors where we run big trade deficits, and the result is clear in many parts of the eastern Great Lakes.

Buffalo has turned a corner in economic development, not by telling everyone it's "cool" or "creative", but by taking advantage of its border with Canada. They got Labatt Brewing to move from Norwalk, Connecticut for this reason. They've also got a big food exporter with Rich Products, and an unemployment rate below the national average.

As I've mentioned in previous posts, exports like soybeans, animal feed, frozen foods, and wheat aren't going to reach the "I need to write about a big idea" threshold many urban pundits require to keep their academic chattering at a high level. But there are two major drains on any region's job growth - automation and foreign competition. You can't do much about the former, but you can do a lot about the latter, as long as you recruit industries where America runs trade surpluses - no matter how boring they might sound to the people who write "Top 20 Cities for ...." magazine lists.

Saturday, June 12, 2010

Innovation is Irrelevant, Part 2

One of the biggest misconceptions in economic development is that cities must show themselves to be "cool" and "innovative" to attract workers and employers. But there is no data to back any of this up, unless you consider position in a magazine ranking more important than unemployment rate.

Many Plains metro regions, from Fargo to Sioux City, have well-below average rates of unemployment. One reason is their connection to agriculture. While hundreds of cities, counties, and states chase after a trickle of biotech and greentech jobs, places that never really moved beyond agriculture into industrial manufacturing are doing better than those crossing their fingers that their taxpayer giveaway will win that 80 person biotech lab.

Like manufacturing, agricultural employment continues to get squeezed by productivity gains and automation. But unlike traditional manufacturing, the U.S. runs a trade surplus in agricultural goods, exporting over $100 billion worth of grains, dairy, poultry, and livestock a year. This keeps the wealth here, and more importantly, continues to make the Plains the world's leading center of agriculture much as Silicon Valley is for semiconductor design. South Dakota, whose leading export is processed foods, is home to some of the lowest metro unemployment rates in the country. And unlike coastal cities, Plains cities' low costs of living prevent massive income disparities from developing.

Being in a region that runs trade surpluses, and is home to large exporters makes the larger cities more attractive to immigrants. 15% of Minneapolis residents were born outside the U.S., compared to just 4% of Cleveland residents. Minnesota's biggest exporter, Cargill, is in the exciting business of exporting grains for feeding livestock, hardly the sort of activity that will get Duluth on Fortune's next "Hot 20 cities for singles" listing.

Rather than chasing after some solar panel factory that will be competing with similar facilities in Malaysia and the Philippines, it makes more sense for regions, especially those off the coasts, to target under-appreciated industries that run trade surpluses.

Thursday, June 10, 2010

Economic Development Is Starting to Remind Me of Moon Unit Zappa

With all the talk of being "creative" and "cool", a lot of the current debate about Economic Development has me thinking the industry is run by 15 year old girls.

Did you like see, Portland she came in today with that bitchin' Pearl District, it was totally rad! And what was Cleveland thinking with those Flats? Gag me with a spoon! Totally! That like Richard Florida guy said we need to be creative like San Francisco, but they like have 11% unemployment, ewwww, grote to the max! And I mean Fargo has like 4% unemployment, bitchin! North Dakota should be like the Galleria of Jobs! but they're not cool enough to sell urban planning books - for sure! And Michigan said they have cool cities, but I was like bag Detroit!

Fun Times in Cleveland

This has been out there awhile, but it's the best analysis of a Great Lakes city I've ever come across. Plus, it's funny.

Tuesday, June 8, 2010

Commercial Urban Farming

It's often discussed in the context of Detroit's vacant neighborhoods, but commercial urban farming is more than a desperation attempt to do something useful with city land in depressed areas. The Seattle Times has a good story today on how people in thriving Seattle neighborhoods are growing their own food.

Monday, June 7, 2010

Minneapolis About to Surpass Detroit as Midwest's #2 Metro Economy

The Minnesota Twins and Detroit Tigers are battling this year for the AL Central division lead, and last year the Twins beat the Tigers in a one game playoff. But the showdown between these two regions extends beyond baseball.

Minneapolis-St Paul is about to surpass Detroit as the midwest's #2 metro economy. In 2001, Detroit's metro GDP was $183 billion, more than 25% higher than Minneapolis' $142 billion, according to the Bureau of Economic Analysis. By 2008, only $7 billion separated the two regions, with Detroit at $200 billion, Minneapolis at $193 billion.

Unlike Iowa, the Dakotas, Nebraska, and Kansas, Minnesota is not a right-to-work state, yet like other midwestern cities west of Chicago, its largest metro area is doing far better than those east of Chicago. Like Kansas City and Omaha, the Twin Cities have always been stronger in agribusiness than the traditional manufacturing that has defined Detroit, Cleveland, and Pittsburgh.

While agriculture has had to deal with the same productivity-created job losses as industrial manufacturing, the physical production never moved - Iowa still produces corn, wheat, and soybeans, while Minnesota and North Dakota still grow the Hard Red Spring Wheat that has been the primary commodity traded at the Minneapolis Grain Exchange since the 1880s.

The economy of food is still highly important to the midwestern cities west of Chicago, and the region's largest metro area is about to become more economically significant than the metro that used to be the car capital of the world.

Cleveland Rocks!....or at least Plays a Pretty Good Violin Concerto

Nick Gillespie over at Reason has put together a pretty good analysis of Cleveland. His research initiative was done in conjunction with Cleveland native Drew Carey, who apparently is big into libertarianism.

But my favorite part of the article isn't the predictable decentralize, less government recommendation, but the intro paragraph where he points out how a world class symphony orchestra is always a highly promoted feature of every declining city.

He's right!

I've never heard of anyone moving to a city because it had a top ranked symphony orchestra, but have heard people who are kind of defensive about the cities they currently live in, or are forced to live in because of work, do so.

Friday, June 4, 2010

Walking in L.A.

According to one of my favorite early 80s songs, "only a nobody walks in L.A."   But according to walkscore, LA is more walkable than Portland.    Will be there soon, wonder how much it's really changed.

Thursday, June 3, 2010

Cruising Around Zipcar's S-1

This week, the Zipcar car-sharing service filed an S-1 with the SEC, as it gets ready to sell shares to the public. While the service has pissed me off by taking up valuable parking spaces in the DC area, I appreciate the creativity behind the concept.

In my last post I mentioned how innovation was overrated in terms of economic development.   Well that's not entirely true.  A major innovation from Zipcar is that they have put photos of girls in bikini tops in the documents they filed with the SEC.   This has got to be one of the best things to happen to American business since Steve Jobs invented the Mac. a registration statement to sell financial securities.
Now, it took me quite awhile to recover from that unexpected surprise.  But I was able to actually take a look at the financial statements.   First thing is that their annual revenue is $133 million, more than the entire MARTA system in Atlanta, and a figure that's growing about 25% per year.   Many of their costs are fixed, so the additional revenue growth is improving margins, and their operating loss has dropped to 4% of revenue from 12% of revenue a year ago.    They should break-even within the next 12 months.

Overall membership is at 360,000, about half the daily ridership of the DC Metro, and has doubled over the last two years, though some of that came from the Flexcar acquisition.  Membership's currently growing at a 25% annual rate, a level at which it would take three years to double again.   Usage revenue per car, excuse me vehicle, has held around $50 per day throughout the company's history.   And here's the interesting part, though not as interesting as the bikini tops on page 3 of their filing - 98% of their cars are leased.   They can take advantage not only of the mass production of cars, but can adjust their fleet up and down based on demand.   This is one reason why this company is selling shares to the public, while transit systems are asking the public for more money.

The balance sheet looks fairly clean, with just $26 million of long-term debt.   There is some convertible preferred stock, but much of this is the VCs' investment, which means future shareholders can expect some dilution.   Nonetheless, this company will have a far easier time making interest payments than just about any transit system.    And I also doubt the MTA, WMATA, or MBTA will be putting pictures of bikinis in their financial statements anytime soon.

Wednesday, June 2, 2010

Innovation is Irrelevant to Economic Growth

Conventional wisdom, as told by academics, urban pundits, and others who can't write a paragraph without a verb that ends in “-ize”, is that we need to innovate to grow our economy. They'll make some claims about R&D, math and science education, venture capital, foreign competition... but I can't tell you what they say after that point because by then I've already clicked over to to check baseball scores.

Still, for the limited portions of the pundits' bullsh, I mean insights, that are compatible with a normal attention span, I hear a lot of the same conventional wisdom that's been out there for 30 years that basically says science jobs are good, service jobs are bad. That somehow the only way to create a resonable wage for most Americans is through scientific breakthroughs, even though many of the breakthroughs we've had since World War 2 have led to the sort of productivity gains that has auto workers greeting shoppers at Wal-Mart, while creating new industries unimagineable 60 years ago, such as Vietnamese-owned nail salons.

One Industry Where No One Ever Complains about Foreign Competition
Personal care industries, from pedicuring (is that what you call that industry?) to nursing to social work, go unnoticed about the chattering class, because it's far more impressive to go on PBS and talk about the need for more innovation than it is to tell Gwen Ifill that the old hag who used to do those nail commericials in the 80s has been replaced by some lady who didn't speak a word of English back then, and now works 70 hours a week polishing toes.

The reason personal care industries do not get much attention is because they are done by women. And no industry dominated by women is featured in any economic development brochure, or has any urban pundit earning high fees on the lecture circuit.

Now this is not an issue of feminism, but of economic reality. Personal care jobs don't get automated or forced into a technology-inspired cycle of productivity gains. They might like to be called “technicians”, but nail care workers aren't about to go under because of new automation software, nor do they have to worry about people in New Jersey flying to Bangalore for manicures. Same goes for teachers, nurses, social workers, and other large professions dominated by people without penises.

These personal care jobs also pay fairly well, often with excellent benefits, and allow for the middle class ideal we're supposed to get by educating more people in math and science, so that they can create new technologies that will automate existing middle class jobs.

Women are the new working middle class, and you can't automate their jobs away. So what about guys? What are we supposed to do?

Corporate Finance is Still a Sausage Party
Being automated out of their middle class jobs, men are increasingly being pushed to the extremes of the economy. We're either competing with foreign day laborers for home repair and construction work, or rising to the top of finance and business.  Since 2001, I've consulted for over 100 hedge funds who were investing in technology companies, and don't think I've spoken to more than three women as part of that effort. Same goes for the marketing executives at the technology companies. Outside of public relations, maybe 10% have been women and the number doesn't seem to be rising.

In all their attempts to organize industries with mostly male workers, unions have only succeeded in advancing innovation, because they've sent manufacturing jobs to right-to-work states and foreign countries. You can't expect a business to pay people any more than a market wage, and fortunately for many women, the school systems, hopsitals, and social service agencies they work for don't qualify as “businesses”. And the hair care, nail care people generally don't have to deal with the pressures of faraway shareholders, but rather the owner who's working the cash register and has been pissing off them off lately.

In terms of national competitiveness, the answer to the “mancession” is not more innovation or creativity. What exactly is Germany or Japan working on that will compete with the iPad?

Tuesday, June 1, 2010

The Decline of Venture Capital

During the late 90's craze to label every region with a Silicon prefix, there were at least 10 states claiming to be in the top 5 for venture capital raised. Terrified of looking connected to the “old economy”, economic development officials from Utah to New York were anxious to tell people what venture capitalists were doing in their state.

While the recession of the early 2000s cooled the “Silicon Prairie, Forest, Alley, Dominion, Beach, Mountain” nonsense, regions still saw attachments to venture capital as essential for marketing themselves, as well as for financing startups that promised to employ hundreds of people. However, most of these efforts created more hype than jobs, and the 100 person startup remained a rounding error compared to the 18,000 people working in area hospitals.

Venture capital has gone in an even further decline the last few years, and many of the issues surrounding limited funds are not tied to the recession, but changes in the technology industry, specifically:

  • Startups seeking funding for operating costs, not capital expenditures
  • Poor performance of “Green Technology” investments
  • More people implementing technology than creating it – a key consideration for economic development

Venture Operating Expense
With the advent of Software-as-a-Service, $3 products designed for the App Store, and with virtually all semiconductor companies going fabless, many startups looking for money plan to use the cash to pay operating expenses, not for capital outlays. This is a major shift from the traditional VC investment which was too risky for bank finance, and too technical for just about any loan officer.

While there are still a handful of companies that need money for R&D and new production facilities, many companies seeking funding have a product, but they need money to hire salespeople and develop marketing campaigns. Software, a long-time VC favorite, has turned into Software-as-a-Service (SaaS), where companies pay a monthly fee, not one upfront charge to use the product.

Similar to the SaaS startups, small development shops running websites or placing products in the App Store do not have massive R&D budgets or capital requirements. But they need salespeople and marketing staff to turn their products into revenue. While these companies can bring some capital needs for servers and network equipment, these requirements are not all that different from non-technology companies which need the same products to run a network and maintain databases, which is also why there are more people implementing technology than creating it.

Implementing Technology vs. Creating New Products
Having one of the thousands of companies deploying Oracle 11g in your state is less exciting than having one of the few companies developing new business software, but the former is tied to far more jobs now that these products have been around so long and installed by so many. In an Indeed search last year, I found four times as many openings in Metro Boston for SQL Programmers than for people with biotech Boston. So many companies in different industries now USE technology, that having expertise implementing it will create tons more jobs than a venture-funded “innovator” developing it.

If Boston needs more people to deploy technology than to create it, you can rest assured Detroit, Cleveland, and Salt Lake City are in the same position. But there's little chance you'll see a database administrator performing routine maintenance on an econ development agency's glossy brochure, even though the lab coat guy whose picture is there represents a tiny share of regional employment.

Green Tech Disappointments
As Biotech and IT have matured, many venture capitalists have turned to Green Tech/Clean Tech/Alt Energy for new investments. But unlike Biotech and IT, many green tech companies have 20-30% gross margins, far lower than the 50-90% gross margins typically seen in venture-funded industries. Because unlike a pill, semiconductor, or software license, most clean tech products have high unit costs.

Historically, one of the chief financial justifications for VC was that unlike industrial manufacturing, high-tech manufacturing created tremendous cash flows past break-even, because raw material costs and labor costs per unit were extremely low, while upfront costs were much higher than industrial manufacturing because of specially-created clean rooms and much higher R&D. Venture capitalists would traditionally hold the company as it raced to cover its high fixed costs, and then sell it or let it go public as it got closer to profitability. But the economics of green tech manufacturing aren't all that different from old-school industrial manufacturing.

Like a car, solar panels (including the thin film products) have high raw material costs. While many use the same material as semiconductors, they don't get smaller every two years like computer chips do. As a result, they have much higher unit costs and are not a great fit for venture investment, in spite of the dreamy hype of the last few years that led to many bad investments in this sector. Fewer companies can get sold or go public when they're not just unprofitable, but need another $1 billion of capital to break-even.

Even with all the feel good clean/green euphoria, venture capitalists are moving away from green tech manufacturing and toward smart grid and energy management, but the companies in these sectors are basically industry-specific software developers.

 (there is nothing close to Moore's Law involved with the cost of making that offshore wind turbine)

It's the 2010s, not the 1990s
While VC never had a significant impact outside a few regions, its time as a catalyst for economic development has long passed. Boring companies implementing someone else's technology hold far more promise for new jobs than flashy companies trying to build something “cool”.