Presentation on theme: "New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public."— Presentation transcript:
New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy Northeastern University PPS G225 OPEN CLASSROOM Economic Growth with Equity February 24, 2009
What is Responsible for the Economic Success of U.S. Cities Key Factors Physical Capital Technology Human Capital Transportation & Communication Revolution Globalization Neoclassical Growth Theory vs. New Growth Theory
Changing Fortunes of U.S. Cities Twenty (20) Metro Areas under study Measure of Metro Prosperity: Median Household Income Compare 1969 and 2005 data (in 2005 dollars)
Austin Tucson Tacoma St. Louis Hartford Raleigh Buffalo Map 1
Largest Percentage Change in Median Household Income (1969-2005) (in 2005 Dollars) #1 Austin, Texas (+84%) #2 Raleigh, North Carolina (+57%) #3 San Francisco, California (+40%) #4 Jacksonville, Florida (+34%) #5 Boston, Massachusetts (+32%)
Smallest Percentage Change in Median Household Income (1969-2005) (in 2005 Dollars) #1 Buffalo, New York (-10%) #2 Detroit, Michigan (- 7%) #3 Milwaukee, Wisconsin (-7%) #4 Chicago, Illinois (+5%) #5 St. Louis, Missouri (+6%)
Prospering Metro Areas: 2005 #1 San Francisco, California (Up from #10) #2 Boston, Massachusetts (Up from #8) #9 Raleigh, North Carolina (Up from #19) #12 Austin, Texas (Up from #20)
Declining Metro Areas: 2005 #20 Buffalo, New York (Down from #9) #17 Milwaukee, Wisconsin (Down from #4) #11 Detroit, Michigan (Down from #1)
Neoclassical Growth Theory Robert Solow: Capital Formation and Technological Change responsible for productivity growth Technological Progress: “Advances in Knowledge” But technology is a “black box”: impact measured as a residual
Neoclassical Theory Dale Jorgenson: Growth in capital input (tangible assets like factories, machinery) is the most important source of economic growth Growth in labor input is the next most important source of economic growth Technological progress is the least important Law of Diminishing Returns dominates
New Growth Theory Paul Romer, Richard Nelson, Sidney Winter Technological Progress is at the center of economic growth
New Growth Theory – 4 Premises Technological change provides the incentive for capital investment Technological change is subject to various complementarities and feed-back loops Technological change occurs as a result of intentional actions responding to profit incentives Technology innovation provides increasing returns to scale
Evidence for New Growth Theory Great Britain vs. U.S. (1870-1929) In 1870, U.S. per capita income only ¾ of Great Britain In both countries, education per worker increased about the same and savings rates were comparable But by 1929, U.S. income levels were 30% higher than in Great Britain Why?
U.S. vs. U.K. “Investments” British investors took their saving and invested abroad U.S. became technology innovator with Henry Ford, Thomas Edison, the Wright Brothers … and Americans invested at home By the 1920s, these technological advances provided a booming economy in the U.S.
Decline in Transportation and Communication Costs Jumbo jet, supertanker, the container ship reduced cost of transportation dramatically Satellites, high-speed internet, fiber optics, teleconferencing, mobile phones reduced the cost of communications dramatically The result: Thomas Friedman’s “Flat World” – Globalization of Production
The Key to 21 st Century Prosperity? Need to be a leader in technological innovation in order to survive and prosper in a global economy where workers and goods can move nearly at the speed of sound …. and information moves nearly at the speed of light.
Prosperous Cities Technology Leaders in the U.S.: Boston, Massachusetts Austin, Texas Raleigh-Durham-Chapel Hill, North Carolina San Francisco, California Jacksonville, Florida Atlanta, Georgia Chicago, Illinois Cities with a concentration of universities and medical centers Cities with powerful international & domestic transportation hubs
The 21 st Century City Centers for Business Services Face-to-face contact opportunities supplemented by high-speed communications attract business Centers for Consumption Cities that are good places to live with lots of cultural amenities and recreational opportunities attract workers
The “Eco-System” for Urban Prosperity Incubators of innovation and technology Attractive locations for the “creative class” of scientists, engineers, architects & designers, writers, artists, musicians, and alike Transportation and communication hubs
A Taxonomy of 21 st Century Cities Innovation Centers Austin, Boston, San Diego, Seattle, Raleigh, Washington, D.C. Finance Centers New York, Chicago; Charlotte, North Carolina; San Francisco Transportation Hubs New York; Chicago; Denver; Atlanta; Memphis, Tennessee; Louisville, Kentucky
A Taxonomy, con’t Cultural/Tourism/Recreation Centers Las Vegas, Nevada; Orlando, Florida; Philadelphia, Pennsylvania New Manufacturing Centers Evansville, Indiana (Toyota); Greensville, South Carolina (BMW; Michelin) Natural Resource Centers Aspen, Colorado (Skiing); Tampa, Florida (Beaches) Retirement Centers Phoenix, Arizona; San Diego, California; Miami, Florida
A Note of Caution: Cost of Living Those metro areas that have attracted creative industries and creative workers are now in danger of “pricing themselves out of the market” The high cost of living in many of these cities (Boston, San Francisco, San Jose) is beginning to discourage working families and businesses from settling in these regions
CURP Study of Housing, Employment and Population Metro areas with highest cost of living are suffering slow employment growth or outright job loss Metro areas with the highest cost of living are suffering net out-migration of domestic population Paradox: The shortage of housing supply can lead to a future sharp decline in housing prices … as jobs and workers leave the state
A Tale of Two Cities Basic Budget 2 Parents, 2 Children Boston Monthly Housing$1,266 Monthly Food$ 587 Monthly Child Care$1,298 Monthly Transportation$ 321 Monthly Health Care$ 592 Monthly Other Necessity$ 500 Monthly Taxes$ 824 Monthly Total$5,388 Annual Total $64,656 Raleigh-Durham- Chapel Hill Monthly Housing$ 779 Monthly Food$ 587 Monthly Child Care$ 866 Monthly Transportation$ 358 Monthly Health Care$ 368 Monthly Other Necessity$ 369 Monthly Taxes$ 350 Monthly Total$3,677 Annual Total $ 44,124 A Tale of Two Cities Source: Economic Policy Institute, “Family Budget Calculator, 2005”
Cost of Living – 4-Person Family #1 Boston #2 Washington, D.C. #3 Nassau-Suffolk Country, NY #4 Stamford-Norwalk, CT #71 Raleigh-Durham, NC #127 Detroit, MI #159 Milwaukee, WI
Housing Cost – Top 10 MSAs # 1 Honolulu, HI # 2 San Francisco-Oakland-Fremont, CA #3 Santa Cruz-Watsonville, CA #4 Oxnard-Thousand Oaks-Ventura, CA #5 San Diego-Carlsbad-San Marcos, CA #6 Boston-Cambridge-Quincy, MA-NH #7 Santa Barbara-Santa Maria-Goleta, CA #8 Washington-Arlington-Alexandria, DC-VA-MD-WV #9 New York-Northern New Jersey-Long Island, NY-NJ-PA #10 Los Angeles-Long Beach-Santa Ana, CA
Greater Boston MSA –6.0% X Of the 10 most expensive MSAs in the nation, All 10 had net outmigration between 2000 & 2006
Projected Percent Change in Households by Age Cohort, 2006-2017 The Future Demographics of Massachusetts Source: U.S. Census Demographic Projections Of a net increase of 193,500 households, 244,600 are projected to be age 55 +
Conclusion A new hierarchy of metro areas is arising as a result of technological innovation and globalization Urban prosperity depends to a great extent on being a leader in technology and a transportation hub But, those cities where the cost of living rises sharply are in danger of pricing themselves out of the market for new firms and working families
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