How to Deal With Your Foreign Competition

Indiana is about a lose a plant to Mexico. Lately, Mexico has been scooping up its share of business investment deals. Maytag headed south of the border not long ago. Many others have made similar decisions because of cost advantages offered by a Mexican location, especially for manufacturing.

Let's look at the Indiana deal.

Alpine Electronics Manufacturing in Greenwood, Indiana announced earlier this week that it will move its production lines next year to a plant in Reynosa, Mexico, eliminating 195 local jobs.

One way to compete with low-priced foreign labor is to boost productivity, but Alpine executives said they had increased efficiency for several years and still had to cut costs further to ensure the company’s survival. This is an important point that we should be listening to--productivity growth itself is not enough.

The wage difference is so great that tax breaks and other common incentives offered to businesses are not sufficient to make up the difference. According to various sources, a manufacturing job that pays $10 per hour or more in the United States might pay the equivalent of less than $2 in Mexico and less than $1 in China and other Asian countries.

Some of these losses are inevitable. We can never lower our costs enough to hold onto some projects. Moreover, we shouldn't even waste our scarce incentive dollars are projects that have Mexico or China written on them. There are many projects that we can keep and attract though. These are deals where quality, technical service, market access, security, political stability, and image matter. There are still many of these deals out there.

Here is a new idea for your consideration. I think we should be considering a strategy in every state that rewards companies that continue to produce in U.S. communities. Maybe it's a new shared tax credit by state goverments and the Federal Government for manufacturing companies that retain and expand existing operations or invest in new ones. The shared credit could be quite powerful if we can convince the states and Washington to work together on it.

New York State Manufacturing Outlook

It’s always useful to get a reading on where companies in an industry sector expect their business to head in the future. Here is the latest from NY State manufacturers.

The post-war rebound continues, as clearly demonstrated by the improving business sentiment among the Empire State's manufacturers over the past four months. Continued improvement in the index for shipments reinforces a picture of improving conditions. While the number of respondents reporting higher new orders increased to nearly 33%, those reporting lower orders also grew nearly 5 percentage points to just over 20%. This is still a jobless recovery in manufacturing, with an equal number of firms reporting plans to shed jobs than to hire in August.

Future expectations are more encouraging with less than 7% expecting worse conditions versus nearly 67% of respondents expecting higher overall business conditions in six months. The strongest growth was the rise in the future inventories index, increasing to a record level of 10.2, with over 31% of reporters expecting higher inventories. Indeed, the six-month outlook for business conditions is at its highest since late 2002, registering in the 50 to 60 range over the past four months.

Article.

Sematech to Stay in Austin

International Sematech plans to keep its headquarters in Austin as part of a long-term strategic plan approved this week by the board of the chip research consortium. The vote ends speculation that Sematech might be lured to Albany, N.Y., with incentives from the state of New York's $1 billion economic development fund.

Sematech is a research consortium that concentrates on semiconductor manufacturing techniques and standards. The consortium -- with 500 employees in Austin, 10 corporate members and a $150 million research budget -- is considered a cornerstone in Austin's development as a high-tech hub.

Article.

China: Invest in Productive Resources

This is the message in a recent analysis by Economy.com. The Chinese are saving too much and looking more to the worldwide stock market as a wealth-building engine instead of reinvesting in their own productive capacities. Thanks to a huge inflow of foreign direct investment, China has become a major goods producer. Much of this investment has come from U.S. companies trying to open the door to the Chinese market and also take advantage of current cost advantages for production. The Economy.com analysis points to long term problems with China's current economic strategy, and I think they have a point.

There is one point missing from the Economy.com analysis that I would add. Who did the Chinese learn this strategy from in the first place? Duh. Maybe there is a complimentary recommendation that should be made about how American companies handle their future profits once the economy gets fully back on track, and that is that U.S. companies need to plow a greater share of their retained earnings into new productive capacity instead of handing out huge stock dividends and paying uncalled for CEO bonuses.

I think we can count on the fact that many interesting twists and turns will characterize China's future economic development in coming years. Is China susceptible to some of the same problems that have hobbled Japan's economic development over the past decade? I see that potential, especially in looking at China's financial system.

The Chinese should adopt a prudent growth strategy that is sustainable over the long term. This will not be easy given the internal and external pressures to pump up the Chinese economy.

Putting the Blackout into Perspective

It is now old news that a major power failure in the Northeast and Great Lakes regions and parts of Canada occurred yesterday. While power has been restored to much of the impacted area, some communities are still without electric power. Investigations starting today will drill deeper to understand the full magnitude of the problem, its causes and how to prevent this from happening again.

Several points need to made about this incident to put it in its proper context for investigation:

1. Compared to almost all parts of the world, electric power reliability in the United States is far superior. Yes, blackouts and brownouts have occurred, but they are very infrequent.

2. The response to the crisis by the electric power industry and government officials was immediate and for the most part effective in restoring power to much of the impact area. I'm sure we will see plenty of finger-pointing in coming days about the causes of this problem.

3. This incident should remind all of us that our electric power system is not invincible and it is susceptible to major disruptions. We should not assume 100% reliability. The real question is what percent reliability should we assume under different demand conditions?

4. This situation should remind us that our infrastructure systems require our constant attention, even when the systems are working as they should. We place enormous daily demands on these systems and do not reinvest nearly what we should to keep them working at an optimal level.

5. Our nation needs a "real" energy plan that encourages conservation, greater reliance on sustainable solutions, and sufficient reinvestment in our energy facilities.

6. This situation should remind us of our interconnectedness in a situation like this. In this case, the weak link in the chain causes the entire chain to break. Initial investigations point to Niagara Power as the trigger point for the cascading outages that occurred. Obviously, we will know more about the causes as time goes on.

7. There is an economic price to pay for this crisis, even as quickly as it appears to have been brought under control. Many businesses were disrupted by the crisis, causing downtime and loss of productivity. Governments and electric power companies have been working on overtime to manage the situation. These are but a few of the costs created by the blackout.

8. Finally, I think we can expect businesses locating facilities in the future to look much closer at electric power reliability. This will be an issue for both densely and sparsely populated areas. Both should expect greater scrutiny.

Brownfield Redevelopment Working in California Cities

Many cities are running out of clean developable land. A number of California have taken this bull by the horns. Here are four case examples you might want to read about.

Emeryville Transforms Community

Sandwiched between Oakland and Berkeley along the San Francisco Bay waterfront, the City of Emeryville has become a national model for brownfields redevelopment. The city, approximately one square mile in size, was created by industrialists at the turn of the last century. Through the 1960s, Emeryville bustled with manufacturing and industry. It was home to a tannery, a recycling facility where used chemical drums were dumped out and washed, a sugar manufacturing plant, and pesticide and pigment factories. During the 1970s, the area’s manufacturing and light industrial facilities began to lose their competitive edge, and many moved overseas or to other states as part of cost-cutting measures. Vacant industrial sites sat disused; the city’s former vitality diminished.

In the early 1980s, city leaders launched a concerted effort to revitalize their mostly abandoned and dilapidated community. With a visionary and united city council, an aggressive redevelopment agency and a good location, the city began redeveloping its brownfields. Emeryville took advantage of all available resources, including federal funds, and entered into agreements with state regulatory agencies to secure local authority over certain cleanups. The city was the first to aggressively use the Polanco Redevelopment Act (see “Brownfields Re-development Tools for California Cities”) to recover cleanup costs from the original polluters.

To date, the city has constructed more than 500 housing units — nearly half of them for low- or moderate-income residents. Due to redevelopment, the city estimates that during the next 20 years, it will add an additional 8,400 jobs. Emeryville expects to benefit from new development, with an annual tax increment of $5.4 million to go toward municipal infrastructure, housing, community services and redevelopment assistance.

San Diego Hits a Home Run

The City of San Diego’s ballpark redevelopment project is one of the best examples of the city’s success in brownfields redevelopment. Located in an area that was once troubled and environmentally impacted, the ballpark area is now in the process of becoming a vibrant, safe, economically sustainable community-supported neighborhood. This success was achieved through partnerships between Centre City Development Corporation (CCDC) and a team of municipal, legal and environmental consultants who worked with the community, property owners and a regulatory agency to clean up and develop the ballpark site.

The project began in the spring of 1998 and was completed in record time in 2000. An assessment of the area documented a history of contamination be-ginning in the late 1800s. More than 100 underground storage tanks were found, along with contaminants such as dissolved lead, gasoline, diesel fuel, burn ash and waste petroleum products. CCDC and the stakeholders collaborated on a master workplan to guide the process of further assessment, cleanup and redevelopment. Remediation included removing the affected soil and groundwater, implementing innovative storm water management strategies and runoff conveyance measures, and incorporating swales and other filtration devices in the ballpark design.

The final plan for the area includes not only the ballpark but also a “park within a park,” thousands of new homes, office space, hotels, retail outlets, parking, a new library branch, schools and public transportation infrastructure.

In addition to using the Polanco Redevelopment Act for one of the most ambitious redevelopment projects in California, San Diego was also the first city in the state to adopt a city ordinance to use the new brownfield cleanup tools included in Senate Bill (SB) 32, the California Land Environmental Restoration and Reuse Act (Escutia-Chapter 764, Statutes of 2001). SB 32 further expands the power of municipalities to address and cleanup contaminated sites (see “Brownfields Redevelopment Tools for California Cities”).

Gardena Targets Distressed Areas

The City of Gardena is located in the southwest area of Los Angeles County, with an ethnically diverse population of roughly 59,000. In 2002, the city received a grant from a U.S. EPA demonstration pilot program to assess and evaluate targeted brownfield sites in the community. The city’s Brownfields Pilot Project identified 47 brownfields in the area and targeted four as immediate priorities for redevelopment.

Using the EPA grant, the city assessed sites located along major transportation routes in distressed neighborhoods on its northern side. The original pilot project has completed six environmental assessments of brownfields in this area of the city, including abandoned retail sites, a waste disposal sump site and sites with known industrial contaminants. Two additional assessments and development of a cleanup design at another site are under way. The city is in the process of acquiring one of the two sites and reusing it as a transit center.

Stockton’s Waterfront Gets a Makeover

The City of Stockton first entered the brownfields arena in 1996, when it was awarded funding from the U.S. EPA for a brownfields pilot program. The work completed under this pilot project provided a learning curve for the city on how best to tackle brownfields redevelopment along the historic downtown waterfront. Until site assessments were completed on both the south and north shores, the city had presumed that historic development patterns had significantly contaminated the lands abutting the waterfront. After assessment, however, all of the areas except one proved to be only lightly contaminated and economically feasible to clean up for future redevelopment. This knowledge has influenced the city’s current redevelopment efforts to concentrate entertainment, recreational, retail and residential development at this location, turning the waterfront into a highly desirable amenity.

With this comprehensive knowledge of its brownfields, Stockton is now moving forward with the cleanup and redevelopment of properties owned by the redevelopment agency. The city has applied the lessons learned from the pilot program, as well as the more elaborate clean-up assessments and plans required by the state. As a result, the city has become a proactive participant in getting properties cleaned up and back into productive reuse.

The city has also made significant progress on CCLR’s supplemental brownfields program with the EPA. The most exciting outcome of this is an innovative pilot program being prepared in cooperation with the California State Department of Toxic Control Substances and the Central Valley Regional Water Quality Control Board. Upon completion, the city will establish regional background levels for specified contaminants of concern, thus streamlining the cleanup of waterfront properties, both privately and publicly owned.

Source: California League of Cities

Global Construction Spending

Fifty-five nations will spend $4 trillion in building stuff this year. The US will lead the pack with investments in the $910 billion range, which is up 1.6% over last year. Japan is expected to invest $664 billion in construction, and China is expected to spend somewhere in the $450 billion range. These are improved numbers over the 2000-2002 period.

As you can expect, this will help economic development here and abroad.

Download the article from Business Week here.

Shopping Center Statistics

Retail sales headed upward in July, which is good news for shopping centers and other retail outlets in communities across America. This is good news for states that rely to a high degree on retail sales tax revenues as well.

As the economy continues to improve, let's take a look at the scope of the shopping center industry across the nation. These are figures for end of the year 2002:

- In 2002, according to the National Research Bureau, there were a total of 46,336 shopping centers in the United States. This total increased by 1.3% from 45,723 shopping centers in 2001.

-The total leasable retail area of U.S. shopping centers was 5.77 billion square feet in 2002, an increase of 1.6% from 5.68 billion square feet in 2001.

- Retail sales in shopping centers increased 4.2% in 2002 to $1.23 trillion from $1.18 trillion in 2001, representing 49% of total retail sales in the United States, excluding sales of automotive dealers and gas stations.

- In a typical month, 201 million adults shop at shopping centers -- 94% of the population over 18 years of age.

- Retail sales in shopping centers generated $53.1 billion in state sales tax revenue in 2001, an increase of $2.7 billion from 2001.
- Over 10 million people are employed in shopping centers, or about 8% of the nonfarm employees in the United States.

Source: International Council of Shopping Centers

Just One More Comment on Career Pathways

A well known and highly respected member of the profession sent me this comment on the Career Pathways article:

"Iannone, I think we are going to strip you of your consulting title and sentence you to go back as a practitioner. A real job in the profession will be good for you at this time in your life. What's all this nonsense about career pathways? The only pathway in the field is the one that you cut through the forest with a machete. Since you wanted to publish these observations for all to see, let me offer one bit of advice on careers in economic development. Never think that any job is to small for you or any challenge too large. If you remember that, you will always be employed in the field. I'm in this business and not selling real estate or doing something else, because I feel like I'm doing something worthwhile and it's fun. As long as I continue to feel this way and my wife and children still love me, I'll continue to toil in the ED vineyards."

Ever Been to Gothenburg, Sweden?

Why not visit September 17-19? Why then? Because The Competitiveness Institute (TCI) will hold its annual cluster conference there.

Click here to learn more about the conference program. TCI is an international organization aimed at advancing cluster-based economic development on a worldwide basis. Great organization.

The Cluster Greenbook results will be presented at the conference, which describes the status of over 200 clusters worldwide.

Closer Look at Manufacturing Productivity

Beware early claims of positive manufacturing productvity growth. The preliminary second quarter U.S. productivity report shows a strong 5.7% increase in productivity over the previous quarter. When combined with better than expected real GDP growth of 2.4%, it is tempting to conclude that the economy is accelerating while also generating productivity gains characteristic of the new economy. While the productivity release does contain some good news, a closer look reveals troubling evidence that domestic manufacturing’s problems are not yet receding. Why is that? Read on.

One of the frequently mentioned contributors to the jobless recovery has been the unusually high rate of productivity growth since the beginning of the recession. Productivity is currently 10% higher than it was at the start of the recession nine quarters ago. In the past two recessions, productivity was no more than 6% higher at the same point. The second quarter results throw more weight behind this argument, as hours declined while output increased over the first quarter, contributing to the steep 5.7% annualized jump in overall productivity.

The numbers in the report point to the weakness of the labor market, as the gain in nonfarm productivity comes from the combined impact of an increase in output and a decline in hours worked. Implication for ED: don't expect many new jobs in your areas. In fact, hours worked have not increased in any quarter since the beginning of the recession. The manufacturing sector is especially weak as output fell for the fourth quarter in a row, surpassed only by the much faster contraction in hours worked.

What does this mean? The implication for the broader economy is that, as of the second quarter, the decline in the manufacturing sector was not complete, as producers reduced payrolls at a faster pace than the decline in production. Although it is common to see higher than average productivity growth during a recovery before significant numbers of new jobs are added, the persistence of decline in domestic manufacturing is discouraging. Doing more with less, or doing a little less with a lot less, is the manufacturing creed right now.

And now you know the rest of the story on productivity growth.

Click here to read more. (Economy.com requires a subscription however).

And Yet More on Career Pathways

Here is comment from a male ED professional from Texas:

"Reading the follow-up comments to your career pathways article prompted me to write. Economic developers are a unique breed. They are neither fish nor fowl when it comes to characterizing them from a professional development level. I am a CED (now called a CEcD) and I'm proud to have attained that status in the field, but between you, me and the wall, the title really has nothing to do with my career development. It helps in getting jobs in some circles, but I find that most government-based ED jobs are as you can imagine still doled out based on political loyality. Some things never change, do they? ED jobs in the private sector are more likely to look at professional creditionals.

What troubles me is the fact that you reach a point in your career when you're just stuck and you cannot go any higher or make much more money. I guess that is true in any profession. There is always another job challenge in terms of a community product to sell. That is not what concerns me. I think I am fairly marketable in recruitment-oriented states in the South, and that is what I enjoy doing the most. I probably would not be as competitive for a job in a Northern urban area where retention was the name of the game and you had to work mostly on redevelopment issues. That's just the way it is right now. By the way, I am one of those economic developers who believes that there should be some common skill sets that a professional has in any regional environment. Marketing is marketing, but you have to tailor it to the particular community's needs and advantages.

I worry about benefits in the field over the long run. Will they be there when I retire some day? Lots of my friends in the field are concerned about this issue too. We seem to pretend that everything will be alright once we retire. Big mistake, I think.

I would offer one suggestion, which is that we really need to figure out how to increase our impact. If we don't, we are going to become a subset of another field in ten years. I heard you speak some time ago about the need for "power tools" in ED. I agree. Solving the workforce issue is one area we need some new power tools, and I am not talking about the need for more government subsidized training programs. Stronger tax credits maybe. A second area we need to expand impact is in the trade arena. I know a lot of companies in Texas that still think the economy and the market ends in Brownsville or El Paso. It doesn't. We need some new ideas in bridging trade and economic development in the border states. We are more likely to keep our jobs and continue to do useful work if we develop some new power tools."

And Even More on Career Pathways

The comments keep coming in on my earlier ED career pathways article.

Here is one from a female ED professional in California:

"Thank you for your comments on career paths for Economic Developers. Your comments regarding a lack of identity are so true. Do you know I still have people asking me in the organization what economic development does? However, part of that comes from the people at the top who hire you and don't really have an understanding of what an economic developer is supposed to do. ( I agree with what you said in that regard.)

In city government, they seem to understand redevelopment much better. As long as we suffer from that the "identity" thing, I find it personally very difficult to get paid for what I contribute to the overall economic condition of the City. It becomes extremely frustrating at times. Planning is much more clearly defined and everyone understands that. But economic development to most people is still pretty exotic."

Here are some more comments from a female ED professional in Michigan that just came in this morning:

"There is a career ladder of sorts--or maybe ladders is a better term--since there are so many various ways to BE an economic developer, depending on the size of the community, its personality and its needs. I worry a lot less about the career ladder than how those of us who are on it keep from falling off prematurely. We shouldn’t have to feel a need to move on after 3–5 years. For the most part we are only then becoming effective. (Which raises some interesting questions about how effective we actually are). But because most of us are slightly ADD, and because we don’t have the tools to manage the stresses and frustrations of the job, much less our own attention spans, we move more rapidly than we should. And I think that adds to the frustration that sometimes drives us out the profession, not to mention increasing the divorce rate.

What I see needed is two things: tools to help us stay in place longer, and perhaps, career exit strategies for those of us who’ve been around a long time and want to do something else, albeit still in economic development. I’ve talked with other folks in Michigan lately who, like myself, are long tenured and pretty secure, and not at all bored. But we are all wondering what the next step is. That’s not the traditional career pathway, that tends to be more focused on the entry levels of the profession."

Wow, this is really good stuff I'm hearing. Keep it coming, and thank you!

More on ED Career Pathways

I've had several emails and even a real letter about my earlier article about economic development career pathways. I would like to share some of these comments with you because they reflect that there really is a problem in how we organize work in the field.

"Right on, Don. Your recent article about career pathways is very timely as I sit here at my desk wondering what my next step is in the field. Frankly, I've gone about as high as I can in the field...at least here in North Carolina. We need to reinvent ourselves, but I'm not sure where we even begin."

"I read your article about career pathways. It resonated with me. As a woman working in the field, I had to work very hard to get to the top. Now, here I am, and guess what? There is no place for me to go but sideways."

"You put the issues and questions out there. Now, what's the answer? What steps should I take to work on my career development? I have a growing family that needs lots of things. I love my economic development job, but it just doesn't pay enough. I have an MBA and worked in real estate for 3 years. I may have to switch fields to something that may be less fun, but pays more and provides better benefits. I read the new compensation survey results by IEDC and it just reinforces that we are not fairly compensated for what we do. "

"Iannone, I knew you followed a round about path into the field, but I had no idea that you almost preached your way into the field. In all seriousness, most of us "gray beards" in the field sort of fell into the field. I'm glad that I'm here and still have a great job. I love what I do. That's what keeps me here, even though I could do lots of other things to make money."

"I will be quite honest with you. My personality needs what the economic development field has to offer. I like being on stage. The visibility is important to me. I also like working with the power brokers in the community. I believe I make a difference in the community through what I do, so I'm not sure that I'd change a lot. At least not at this point."

"What is our national professional association (IEDC) doing about all this? I don't see much on career advancement. Yes, they offer plenty of courses on how to approach different practices, but I hear nothing that helps me plan my career in uncertain times. A couple people in the field have addressed this issue. For one, Rick Weddle from Phoenix has spoken on this topic at EDI. Mark Waterhouse from Connecticut has addressed the issue through the CED/CEdD perspective."

"I think the issue will resolve itself over time. I wouldn't make a big fuss about it. In fact, we could actually destroy the good thing we have by prescribing anything that remotely looks like a set of rigid career steps. I worked in a horrid bureaucracy before going to work for the chamber. There is a difference in career opportunities in government and the private sector. I think the best jobs in the field are in the private sector because you can be more creative there."

"As an old-timer in the field, I think this is an equally important issue for the senior members of the trade and the younger people just entering the field. For the experienced practitioner, you peak out and have to settle. For the new person entering the field, you don't know which way to go to maximize your career growth. It's tough, but in either case, you basically take what comes along."

Once in a while you hit upon a nerve with an article. I guess this was just one of them. I will continue to noodle this issue. In the meanwhile, keep your cards and letters coming. Thank you.

New Study on Regional Health Care Economies

The Milken Institute has just released a study of metro area health care economies, which is interesting reading. You can download it here. (Registration at the Milken website is required.)

There is one subtle issue that was not brought out by the Milken study, which is that health care is still largely seen as a "cost" to most other industries. Most employers are doing all they can to drive down health care costs.

I know several EDO's that have mounted huge crusades to crush health care costs because other sectors of the economy want to pay less for employee coverage. No doubt, health care is costly, and there are many reasons why that is the case.

Here is another interesting issue. The number one sought after industry cluster in America is "life sciences," which are closely linked to our health care services complex.
Most of these efforts are designed to increase spending on new technology and research related to biotech and life science equipment, products and services. What effect will all this have on health care costs?

Life poses some interesting paradoxes, doesn't it? I think you would benefit from a reading of the Milken report in any case.

What's Headed to China?

Shanghai is going to become the second production location worldwide for W-CDMA technology from Siemens. That’s why the company is investing US$30 million to expand the Shanghai Siemens Mobile Communication (SSMC) factory. This is a perfect example of the type of investment China is landing these days. Why? Because there are 234 million mobile phones in the country.

Read the story here.

Colorado Raiding Mission Report

The Governor of Colorado and Denver's Mayor just returned from a recruitment (raiding) mission in California. If you haven't noticed Colorado has stepped up its economic development efforts in recent months.

Some communities in the state are now offering a $10,000 bounty for anyone helping to land a California company in their community. Incentives are far from being new, but this is a unique twist on the incentive game that rears its head from time to time. This is one you have to be very careful with for a variety of reasons. Probably not a good idea to use public money in doing this. The audit trail could be problematic.

I think you will find a recent Rocky Mountain News article, co-authored by Bill Owens (Colorado's Governor) and John Hickenlooper (Denver Mayor), to be interesting reading. Click here to read the article. Two messages are found in the article: 1) the state and the city are working together; and 2) they recognize that Colorado has strong trade and economic ties with California.

It's great that the state and the state's largest city are cooperating. The trade and economic linkage recognition is good as well. One bit of advice on the latter issue--remember that the tie the binds can be both a source of opportunities and problems. If California continues to stumble and its companies get hurt, there are ripple effects for other states, like Colorado, which provides a location for plants and offices of California-based corporations.

Colorado is an attractive state for economic development and it has a lot going for it. It also has a track record of inconsistency in its ED efforts. For how long will the "industry welcome mat" be out this time? That is one for state's ED professionals and its elected officials to think about.

Metro Areas Drive Economic Growth

Tell me again. Are cities important to the global economy? Global Insights recently released its updated analysis of the role of U.S. metro areas in the economy for the U.S. Conference of Mayors. It is a must read. You can download it free here. This version includes an analysis of industry clusters in several metro areas.

Here are a few of the many findings of the analysis.

Metro areas account for over 84% of national output, driving the economic performance of the nation as a whole. Of the 319 metro areas, 294 showed growth in inflation-adjusted output in 2002, but only 43% grew faster than the national average. In total, metro areas only grew by 1.8% after inflation in 2002. Non-metro area growth was faster than metro area growth in 2002, as the total economy expanded by 2.4%.

Metro areas accounted for 85.6% of production of goods and services in 2002, the same asin 2001. Over the past 10 years, metro economy output increased from $5.2 trillion to $9.1 trillion, an average annual increase of 5.6%. The share of the nation's output accounted for by metro economies increased from 84.5% in 1992 to 85.6% in 2002. Global Insight expects the contribution of metro areas to the national economy to continue to rise over the 25 years, as metro areas remain the focal point of economic activity. Global Insight predicts that metro areas will account for 87.3% of national activity in 25 years, up 1.7 percentage points from 2002.

These are very significant numbers indeed.

Higher Education Cuts Hurt Economic Development

With most state budgets in shambles, higher education has received its share of budget cuts. What is the overall effect of these cuts on economic development? It hurts our ability to grow the knowledge economy here in U.S. communities. It leaves us even more susceptible to international competition for knowledge jobs and businesses.

A receny New York Times article explores these issues further. Click here to read it. (Registration at the NYT website is required.)

More than seven million students are enrolled as undergraduates in four-year colleges and universities in the United States, and nearly 70 percent of them attend public institutions, which depend on taxpayer money allocated by legislatures for the majority of their funds. The percentages are similar for the 1.8 million graduate students; 60 percent attend public universities.

Higher education, it turns out, comes under the rubric of discretionary spending, which is easier to cut than outlays for kindergarten through 12th grade or programs like Medicaid. And states are taking this easier path, according to the National Conference of State Legislatures. During most of the 1990's, outlays for higher education in the 50 states rose substantially. They even inched up 0.7 percent, to $58.2 billion, in the 2003 fiscal year, which ended on June 30, although that was the first year of drastic cutbacks in many states.

This year, the downward pressure is unmistakable. So far, 43 states have approved budgets for the 2004 fiscal year, the National Conference reports, and higher-education outlays have dropped by 2.8 percent, to a total of $37.7 billion, from $38.8 billion last year. The final tally for all 50 states may be slightly higher than last year's, but by a minuscule amount.

Be careful with that budget-cutting knife. It could hamper growth in your state in the future.

Companies Are Beginning to Invest Again

It's been a long road, but companies are once again spending on facilities, equipment and machinery. That is good news for economic development. A recent New York Tims article interviews various corporate officials about their current spending attitude, and it is improving. Click here to read the story. (Registration at NYT site is required)