Bruce Katz of the Brookings Institute: A Deadlocked Washington Means US Metro Regions Must Address Manufacturing and Exports

Share with our readers the thesis of Export Nation 2012 and The Next Metro Economy, which Brooking’s Metropolitan Center has recently published.

Bruce Katz: Our notion has been that the US needs to have a different post-recession growth model. Prior to the recession you could categorize the US economy as addicted to consumption and debt, and we clearly saw the limits of that growth model in the economic collapse. Post-recession, we are playing out a different growth model where the economy could be driven by exports and global engagement, powered by low carbon and advanced energy, fueled by innovation, both in ideas and manufacturing, and rich with opportunity. We could create not only more jobs but better jobs with higher wages and higher benefits that reduce income inequality. Our focus as a metro program is to take a macro growth vision and nest it in the top hundred metros so each metro can understand their starting point with regard to productive and sustainable export-oriented growth.

Our report released last week, Export Nation 2012, did just that with regard to each of the top one hundred metros. It showed, for example, what LA exports compared to what Louisville exports, and what Denver exports compared to what Detroit does. I think this gives metros not only interesting data; it provides information around which they can build deliberate export strategies.

The federal government is the big player on trade, and obviously it has an enormous effect in designing and implementing trade agreements, in dealing with broad currency issues, and as a major investor in infrastructure, skilled workers, and export promotion and finance. It takes a nation to be effective from an export perspective. Yet nations that are effective don’t only have their central government focused on global engagements; their states, regions, and cities are intensely involved. We argue that the US underperforms on exports; some even label us as an “emerging market” on exports because as a nation we’ve been so narrowly focused on our own domestic market, which is very large. We’ve ignored the rise of China, India, and Brazil over the last 20 years. With domestic demand crippled at home because of the housing collapse, because of the overhang of the recession, and because of global demand rising, we think it’s time for cities and metros to reconsider their own economic development strategies by focusing on those firms, both in manufacturing and services, that can sell abroad. 

And Brooking’s Metropolitan Export Initiative, what is the thrust of this initiative?

We’re working with groups in metropolitan areas, starting in LA, Portland, Minneapolis-St. Paul, and Syracuse. We basically said, “Each of you has a very distinct export economy.” This is not the retail economy; if you go to each of these cities and look at big box retail, it looks pretty much the same in all four metros. If you look at their export profiles, they’re really quite different. 

With these four metros we’ve constructed export strategies that build off their strengths and leverage their distinctive assets. That starts with an assessment of who they are, and then it builds to a set of goals and a set of strategies that are very precise, focused, and specific.  These metros build on the federal infrastructure that exists around export promotion and finance and are also adding their own resources and playing an important coordinating role across multiple agencies and resources between the public and private sectors. This is a shift in focus at the city and metro level. 

Five to ten years ago, the economic development strategies of most cities and metros rested mostly on real estate plays or on enhancing certain amenities. Today we think that cities and metros should focus on those sectors that actually drive the rest of the economy. These sectors generate wealth, and they are globally oriented, which is where a lot of growth is going to come from over time.

According to the Los Angeles County Economic Development Corporation (LAEDC), metro LA is the nation’s number one manufacturing region, with more than 389,000 people employed in that sector. It’s the largest middle market banking center in the Western United States; combined, the Port of Long Beach and the Port of Los Angeles constitute North America’s largest port. Given these assets, what more must the region do to enhance its export economy?

Los Angeles clearly has enormous assets, and you have a very diverse export economy. This is largely because LA is so large—once you get to medium size metros they tend to be less diversified.

When we talk to manufacturers around the country, they tell us almost uniformly that a major barrier to growth is the lack of skilled workers. There is an image of manufacturing in the United States that is probably about thirty years out of date, framing manufacturing as a “dirty” and only requiring a certain level of education and skill.

The opposite is true. This is one of the most sophisticated sectors of the US economy, highly technologically supported, requiring skills in many cases at the post-secondary level. It requires cities and metros to be disciplined in working with the private sector in fostering a steady supply of workers.

An LAEDC economic mission to Japan recently returned, and the trip’s goal was to honor and build upon existing relationships with the 1200+ Japanese companies doing business in metropolitan Los Angeles. How large a role are such international regional trading relationships playing in fostering export economies?

What you’re describing is the basis of the Global Cities Initiative that we have with JPMorgan Chase. The inaugural forum will be held in Los Angeles on March 21st. What we see emerging in the world essentially is a network of trading cities. Cities and metros are the driving engines of the national economy, and there is a fairly discernable network of trading cities based on their sectors, clusters, and competitive advantages.

In some respects this is not new. When you think about how the global economy evolved—back to the beginning of the common era, the silk road, and the medieval period—cities traded with each other based on relationships and networks that were sharply honed. That’s essentially what is happening now in this century. Nations obviously do set the rules of the game, but cities tend to collaborate. At that level they tend to form very tight and lasting relationships. What you’re describing in Los Angeles is what we’re going to see across the United States: cities forming sharp linkages with their city trading partners in mature economies like Japan, Europe, Canada and Mexico as well as rising nations like Brazil, India and China.

This is a new imperative for American cities and metros that have not had to get out as much in the last 25 years because our domestic economy was growing so strongly. But clearly the rules have changed. I would say over the next decade and onwards, being globally fluent and understanding your special position in the world and acting on that position through these sharp networks of trading cities will almost be a prerequisite for city and metropolitan success.

What are the elements of a healthy, regional ecosystem to support greater exports?

It is an intricate ecosystem. It obviously starts with those companies—large, medium, and small—that are already exporting, and it starts with the institutions, community colleges, trade associations, universities, and governments that are acting in the service of exporting firms. This is a fairly intricate network; it’s not as well developed in the United States as in other parts of the world. That’s partly because we have such a large domestic economy, and partly it’s because the role of manufacturing has been dismissed over the past 20 years in American political debate.

There is a lot of talk of the knowledge economy as it if it were separate from the manufacturing economy, and there is a lot of talk about the postindustrial economy, which is nonsense given how powerful our manufacturing sector is. I think the ecosystem for manufacturing, advanced services, and exports is a very diverse and intricate one, and firms are reliant upon the health of this ecosystem to succeed.

Small and medium sized firms just don’t have the wherewithal to do all that it takes to identify market opportunities, act on those opportunities, and build a world class infrastructure system that can move goods and services efficiently and effectively. The United States tends to focus on the firm and the entrepreneur. We have CEO celebrities, and we think of the economy as dependent on those individuals and their firms. Actually, it’s the ecosystem, the network, and the supporting institutions that we need to understand if we’re going to compete globally this century. 

You’ve focused your recent work at Brooking’s Metropolitan Center on a distinct set of cities and metropolitan areas. Address how these regions are investing to enhance their export ecosystems. Share with our readers the best policies and practices?

I think the models extend across all of the elements. Cities clearly need modern, state-of-the-art infrastructure: ports, rail, roads, transit, air. It would be nice to have a national government that had a national freight strategy and upgraded the infrastructure of leading edge metros. We may be a first class economy, but I think we have a third class infrastructure. We don’t have that national government right now; many cities and metros have to think about their own finance mechanisms for portions of this freight infrastructure. I think this puts us at a disadvantage. Freight, finance, and infrastructure are number one.

What we’ve seen in LA and Denver with sales taxes for transit and in Chicago with their proposed infrastructure bank makes these metros the vanguard in terms of policy innovation while the federal government dithers, lost in gridlock.

I think the second piece is around the interplay of universities and manufacturing firms. If you ask why Germany is the most successful European manufacturer—number three in the world behind the US and China—you learn that it’s partly because there is a very tight network between German research institutions and manufacturing companies. There are a few states, like Ohio, that have copied the German model, but they are the exception not the rule. I think in the next five to ten years we’re going to see many more states or metros step up to the plate.

The last piece would be skills. The Germans are also phenomenal at having a feeder network of skilled workers in their metros aligned with their leading edge clusters. We do have a network of community colleges in the US. In some cases they have been able to align closely with the manufacturing sectors that are dominant in those places, but I think we have a lot of work to do here.

Infrastructure, the interplay between manufacturing and innovation at the universities, and skilled workers: I think those are three major areas where cities, metros, and states are going to have to step up to the plate. I think the days of waiting for Washington are long over. 

Lastly, having observed firsthand federal and regional export and manufacturing initiatives, what does constitute best practice? Who are the political constituents of a new paradigm shift to an export manufacturing economy?

At the national scale, it’s clearly global companies and production firms. I don’t think anyone is more articulate about the need for the United States to have a different growth model and to support that growth model than Jeff Immelt (CEO of General Electric) and Andrew Liveris (CEO of Dow Chemical). Immelt is the head of the President’s job council, and Liveris is co-head of the President’s advanced manufacturing partnership. The major global companies, the production firms, are the leading advocates at the national scale; they just can’t get anything done with a federal government that is polarized.

I think leadership is also shifting to the state, city, and metro scale, where I think we have a pragmatic caucus. These are not just elected leaders but also business leaders, university leaders, philanthropic leaders, and environmental leaders, who I would say disproportionately put place over party and collaboration over conflict. 

John Hickenlooper, Governor of Colorado, likes to talk about the need for networks of metropolitan leaders and institutions to collaborate to compete in today’s global economy. If you look around the country today, you see governors on both sides—Hickenlooper in Colorado, Andrew Cuomo in New York, Martin O’Malley in Maryland, Rick Snyder in Michigan, Bill Haslam in Tennessee—embracing the different growth model. You see mayors doing so as well, irrespective of party, and that’s what gives me hope about the country. While the federal government dithers, the rest of the country is awash in leadership, innovating constantly to build the kind of networks we need to enhance our prosperity.