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The New Economic Map of America

From the Magazine: Wednesday, December 13, 2006

The geography of the U.S. economy is constantly shifting. Now, writes JOEL KOTKIN, the hinterlands are getting their revenge on the big cities of the East and West Coasts. Towns like Sioux Falls, South Dakota, and St. George, Utah, are the winners. The losers are ‘hip’ cities like Boston and San Francisco, which don’t seem to know it yet.

Asked which American cities have been the biggest economic winners of the new millennium, almost anyone reading a daily newspaper or watching a nightly news show would name places like New York, San Francisco, Boston, and Washington, D.C., where condo and single-family home prices have surged and the wealthy enjoyed a bonanza by leveraging their real estate assets.

In fact, the true hotspots are scattered across a landscape all but unknown to the Manhattan-based media. Soaring condo prices are a minor and probably transitory phenomenon. In the new economic geography of America, most of the winners are in fly-over country; the losers on the densely populated coasts.

The price of land may be the most critical element. Even in an information economy, dirt still matters.

In 2005, fewer people were employed in New York City than in 1969—while, over the same period, the United States as a whole gained 61 million jobs, an increase of 87 percent.

The real growth since the 1990s has been in places with names like Sioux Falls, Reno, Boise. These cities have also benefited from the unprecedented rise in real estate values, but, unlike the coastal cities, they have also have been gaining jobs in a variety of industries, from commercial construction to high technology and high-end business services.

Between 1994 and 2005, the Phoenix area expanded employment by 52 percent, Orlando by 48 percent, Charlotte by 31 percent, Boise 44 percent, Reno 36 percent, Houston 25 percent, and Las Vegas an astounding 86 percent. By comparison, New York City and greater Chicago expanded by only single digits, while the Cleveland, Baltimore, Detroit, and Philadelphia areas all lost jobs. It’s no surprise that many people—particularly in younger families—are moving out of the slow-growth cities.

In this decade, for example, San Francisco, Minneapolis, and Boston have suffered declines in population. The emigrants head either to the exurbs or to places in the Southwest or Florida, where they can live well for less money and find better jobs—including high-end business-service jobs (like consulting, accounting, and financial advising) that can locate anywhere and now tend to cluster in beautiful places to live like Fort Myers, Florida, and St. George, Utah.

These trends have been reinforced by housing costs. In San Francisco, fewer than one-tenth of families can now afford a median-priced home; in Dallas, San Antonio, Charlotte, and Houston, more than half of families can.

The movement to the exurbs and beyond tells us something important about how most Americans prefer to live. Contrary to the constant trumpeting of “a return to the city” and the madcap downtown condo explosion (which affects only a tiny proportion of U.S. families, though a big chunk of the chattering classes), most Americans—about four out of five—still want to own a single-family home.

New York City and Los Angeles still have the raw material for growth, but high taxes and excessive regulations make it difficult to start new businesses. California and New York rank ninth and eleventh in the nation for highest taxes per capita.

There is, of course, a market for dense urbanism, but it is the stated preference of only between 10 percent and 15 percent of the population, according to surveys by Fannie Mae over the past few decades. By contrast, roughly 35 percent of families prefer rural areas, which are now home to 20 percent of the U.S. population. About half of Americans prefer suburban living.

Don’t underestimate the impact of the 1978 deregulation of air travel, and the rise, especially, of Southwest Airlines, which now serves 63 cities in 32 states, including 224 daily departures from Las Vegas alone. Since the late 1990s, the Internet revolution has played a similar role, allowing business to go where people want to live—and where entrepreneurs prefer to start companies. And air conditioning has let Americans settle in desert cities once thought unfit for habitation, let alone significant commerce.

This constant geographic churning is a fundamentally American characteristic. We’re restless; we aren’t stuck in a single place. In each era of our history, some towns, cities, and regions have been perceived as the new and shining places of opportunity, and others as losers. But often, the losers become winners.

In the decades following independence from England, young people from the eastern seaboard headed to the frontier. Between 1810 and 1860, population in the largely agricultural region west of the Appalachians soared from 15 million to 47 million.

But as the economy became more industrial, Americans began to move back into the largest cities, particularly the great ports and most critical railheads. As late as 1850, the United States had only six cities of over 100,000 people. But 50 years later, there were 38 such cities. Immigration, investment from Europe, the rapid development of manufacturing—all of these propelled urban expansion, with cities like Chicago, Pittsburgh, and Cleveland among the fastest-growing in the world.

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Americans haven’t lost their wanderlust, but today they are moving out of larger, established urban areas to the periphery, and now, even to the hinterlands. Mass suburbanization—which took off in the 1950s as veterans returned from World War II looking for homes with backyards for their new families—represented the first phase of this dispersion. In 1920, one-fifth of the population lived in the 30 most dense counties; today, one-ninth. People and companies, particularly in high technology, fled urban centers either for the suburbs or for the new, low-density cities of the Sun Belt.

This centrifugal process is happening in virtually every part of the country. In contrast to the old industrial paradigm, where jobs clustered in the most populated places, economic growth now moves toward less dense parts of metropolitan areas—10 to 20 miles from city centers. These suburbs and exurbs are becoming largely independent of the core, in contradiction to popular urban legend. Local economies today grow on the periphery, almost oblivious to what happens at the center.

Take the Inland Empire region of Southern California. Los Angeles and its closer suburbs experienced only 8.5 percent job growth between 1994 and 2005. In contrast, the Riverside-San Bernardino area, about 60 miles east of the center of L.A., expanded its employment by a remarkable 56 percent. Much of this gain has come from manufacturing, warehousing, and business-service firms that have moved inland for lower costs and a better business climate.

The price of land may be the most critical element here. Even in an information economy, dirt still matters, says John Husing, an economist based in Redlands, near San Bernardino. Although property prices may be rising in the area, the cost of housing is still only about half what it is closer to Los Angeles. Back in the 1970s and 1980s these lower costs lured blue-collar workers. Now, higher-end employment in professional services is increasingly fueling the boom.

The contrast is even greater around older cities. New York City may be, in Mayor Michael Bloomberg’s phrase, “a luxury product,” but most of the new jobs and population growth is taking place in the suburbs around the city, like Northern New Jersey and New York’s Putnam and Duchess counties.

An even more extreme example can be found around a less buoyant older city, Philadelphia. The media make much of Center City Philadelphia’s revival—and certainly it is a more pleasant place than it was a generation ago. But as a living, breathing entity, Philadelphia is a city in continuous decline, its population falling for decades. It’s now down by more than 100,000 residents, while the surrounding suburbs have enjoyed steady growth. Over the past decade, Philadelphia has lost roughly 4 percent of its jobs, while the sprawling South Jersey suburbs increased their employment by 23 percent.

These increasingly independent suburbs now boast their own “town centers,” have thriving religious and cultural institutions and even minor league sports teams. With the rapid movement of immigrants, these areas are also becoming more diverse. You can see the evidence in an explosion of ethnic and even elegant restaurants, concert halls, and night clubs. This change is occurring largely to the wonderment of many journalists, academics, and planners. How can suburbs exist without a connection to the core city? Surveys of suburban and exurban residents, however, reveal that simple things matter: a greater sense of community, better schools, and public safety.

Of course, people who live in fast-growing areas like Chesterfield or St. Charles, in the outer ring more than 20 miles outside St. Louis, occasionally go to a Cardinals baseball game downtown, but they work, dine, and shop in their communities.

Now take what is happening in the suburbs and apply it to an ever wider canvas. At current rates, by 2010, over five million people—many of them upwardly mobile and middle-class—will be moving from the largest metropolitan areas to smaller cities and towns. It’s what demographer Wendell Cox has called “sprawl beyond sprawl.”

Smaller towns and formerly neglected cities are booming, like Bellingham, Washington; Medford, Oregon; Greeley, Colorado; Fayetteville, Arkansas; Portsmouth, New Hampshire; and Portland, Maine.

Cities like Midland, Texas; Bismarck, North Dakota; and Casper, Wyoming, are benefiting from the rise in the price of fuels, particularly coal and oil. In the Great Plains, places like Des Moines, Iowa, and Sioux Falls, South Dakota, are seeing a windfall thanks to the growing importance of biomass and other newly popular forms of energy.

But it would be wrong to conclude that the changes are driven mainly by commodity prices. What is bringing people—and businesses—to these smaller and more remote places is precisely what led them to the suburbs of big coastal cities initially: good schools, easier commutes, good neighbors, clean air, space for kids to play. Meanwhile, the Internet has had a radical effect in areas like the Plains, allowing even sophisticated businesses to operate far from the major corporate centers.

Constant geographic churning is an American characteristic. We’re restless; we aren’t stuck in a single place.

“We now can work in a challenging industry but live in a place we want to live,” says Vern Dosch, president and CEO of National Information Solutions Cooperatives, a software firm employing 280 near Bismarck and adding several dozen more workers this year. “We can send our kids to a public school where 95 percent of the kids go to college. You don’t worry about crime, and the idea of a long commute just isn’t in the vocabulary.”

Some cities now rising, especially on the Plains, were once seen as declining. Other boomtowns, including many in the outer suburbs or in the Southwest, were barely specks on the map just a generation ago. The population of the city of Las Vegas has jumped from 64,000 in 1960 to over 550,000 today. In the same way, a half-century ago, who would have predicted the plunge of great cities like Detroit, Cleveland, or Baltimore?

Is the rise and fall of American cities shaped by outside forces (like energy prices), or is there something these urban centers can do to reinvent themselves? Some, frankly, may not want to. A wealthy, self-satisfied, smaller metropolis like Boston, with a high concentration of affluent, educated people, may have little incentive to change and grow. The people with the nice views from their condos—and a charming country home or Caribbean or Rocky Mountain getaway—have already achieved what they want. They work at elite universities, prestigious laws firms, and global corporations. They feed off old accumulations of capital unconnected to the fate of the local economy.

Fortunately, some cities, including New York and Los Angeles, still have the raw material for growth—notably highly skilled populations and large numbers of aspiring immigrants. What they need now is to shift their policies from serving the ultrarich and subsidizing the poor to an approach that favors the middle class and entrepreneurs. Major targets should be high taxes and excessive regulations that make it difficult to start new businesses. The states of California and New York rank ninth and eleventh in the nation for highest taxes per capita.

Cities in the old industrial Midwest like Cleveland or on the downtrodden East Coast like Newark have a more urgent problem to solve. These are places where there is relatively little institutionalized wealth and where few people want to settle for lifestyle reasons.

Contrary to the constant trumpeting of “a return to the city” and the madcap downtown condo explosion, most Americans still want to own a single-family home.

Yet a slide may not be inevitable. A declining state like Michigan has a skilled workforce and some fine universities. What the state needs is not more “coolness” but what might be seen as a back-to-basics approach that focuses first and foremost on boosting economic competitiveness—with an eye to the success of Sun Belt cities like Las Vegas, or Charleston, South Carolina, or perhaps more culturally compatible role models like Dublin, Ireland.

Successful cities like Houston grow because primary emphasis has been placed on the fundamental blocking and tackling of economic development—streamlining regulations, maintaining sewers and drainage systems, building up the port and the road network. The mayor of fast-growing Aberdeen, South Dakota, says his city owes its success to $100 million worth of new highways, plus a pro-business climate and some of the lowest tax rates in the nation.

By contrast, stagnant places like New Orleans, Philadelphia, and Cleveland have poured their limited resources into convention centers, sports stadiums, cultural palaces, or the development of planned entertainment districts. Yet even these cities still have a chance, if they wise up. This country is so full of great prospects, and Americans are so ready to embrace a new place that promises a brighter future, that no community has to resign itself to defeat. In this decade alone, we have seen scores of cities, towns, and even villages pull themselves out of obscurity and achieve success—often very surprising success—against what may have once seemed impossible odds.


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