China: Both Threat and Opportunity

With China's impressive growth and rapid modernization, many fear here in the U.S. and other countries that China will become the world's factory, sucking millions of jobs away from North America, Europe and Japan. This ignores China's growing appetite for imports, as well as exaggerating China's capacity to make everything for everybody. But it does mean changes in what different countries do to succeed in the world.

Despite fears of Chinese competition, the growth of China will also present enormous opportunities for the West. Our challenge is to advance our own capacity for high-value activities, rather than pursue the kind of protectionist whining that is now in full howl in the United States.

China represents both threats and opportunities to American companies and communities. Economic developers should look at China in this larger context as they give shape to local, state and national policies designed to address international trade and investment issues. I believe the Chinese will invest in the U.S.--initially through mergers and acquisitions--just as other nations like Japan and Korea have done in the past. Keep a balanced perspective on China and what it means. You just might find many of your companies siding against you, if you take the wrong position. All companies--large and small-must think globally to survive.

Go here to read a recent article in the Toronto Star that speaks to some of these issues.

New Report on Public Graduation Rates

The workforce of the future will be greatly shaped by how well our nation's students succeed in their public education. A recent report by Manhatten Institute for Public Policy assesses this issue.

You can download the report here.

The report’s main findings are:

- The national graduation rate for the public school class of 2000 was 69%. The rate for white students was 76%; for Asian students it was 79%; for African-American students it was 55%; for Hispanic students it was 53%; and for Native Americans it was 57%.

-Florida’s public schools had the lowest overall graduation rate in the nation with 55% of students graduating, followed by Georgia, the District of Columbia, and Arizona.

- New Jersey had the highest overall graduation rate with 87%, followed by North Dakota, Utah, and Iowa. - Wisconsin had the lowest graduation rate among African-American public school students with 41%, followed by Florida, Oregon, and Tennessee. The highest rate of graduation among African-American students was 74% in West Virginia, followed by Arkansas, Massachusetts, and Virginia.

- Mississippi had the lowest graduation rate among Hispanic public school students with 23%, followed by New York, Oregon, and Florida. The highest rate of graduation among Hispanic students was 73% in Louisiana, followed by Wyoming, Hawaii, and Virginia.

- Nebraska had the lowest graduation rate among Native American public school students with 40%, followed by Minnesota, Nevada, and Oregon. The highest rate of graduation among Native American students was 86% in Alabama, followed by Illinois, Oklahoma, and Texas.

- Graduation rates for African-American, Hispanic, and Native American public school students were particularly low in a number of states; for each group there were six different states with graduation rates below 50%.

- Rhode Island had the lowest graduation rate among Asian public school students with 66%, followed by Tennessee, Hawaii, and Massachusetts. The highest rate of graduation among Asian students was 95% in Illinois, followed by Missouri, Oklahoma, and Maryland.

- Florida had the lowest graduation rate among white public school students with 60%, followed by Tennessee, Georgia, and Alaska. The highest rate of graduation among white students was 89% in North Dakota, followed by South Dakota, Nebraska, and Iowa.

- The National Center for Education Statistics (NCES) finds a national high school completion rate of 86.5% for the class of 2000. The discrepancy between the NCES’ finding and this report’s finding of a 69% rate is largely caused by NCES’ counting recipients of General Educational Development (GED) certificates and other alternate credentials as high school graduates, and by its reliance on a methodology that is likely to undercount dropouts.

New R&D Economic Impact Guide Released

The National Institute for Standards and Technology (NIST) just released its guide to conducting economic impact studies on government-related R&D activities. You can download it here. It is a useful resource document for you to keep around.

Nebraska: Middle-of-the Road In Technology and Science

Earlier this month, the State of Nebraska released its final study report assessing the state's position in the science and technology sector.

Overall, Nebraska is middle-of-the-road when compared to states nationally and immediate surrounding states. It received its best score for tech and science workforce and mid-range scores for R&D, entrepreneurial infrastructure, tech sector dynamism, human resource investment, according to the Milken Institute, which conducted the assessment.

The assessment uses Milken's established system of indices and measures, which incorporates data and frameworks devised by many academic researchers, consulting firms and think tank-type organizations.

The more important question is what actions should Nebraska take to: 1) strengthen its science and technology base; and 2) how does it generate more economic growth in the future using these assets? Here are a couple starting thoughts in this regard:

1. Nebraska should identify selective areas of investment in the sciences and technology fields. No state can be good at everything or even several things. The question is which areas are most promising for Nebraska. Agriculture-related technologies make a great deal of sense, but so do many other areas that are consistent with the University of Nebraska's strengths. The life sciences, including agriculture boitech, also makes sense.

2. Nebraska should look at a technology application strategy that meets the needs of its urban and rural centers. What may work and be good for Omaha and Lincoln may not work for the more sparsely populated areas of the state. Its urban centers are more likely to benefit from the state's science and technology strategy, but its rural areas can seize some benefit if they are proactive about it.

Omaha has seven billionaires. That alone is major competitive advantage in providing business and philanthropic investment capital for tech-based economic development. See what Warren Buffet has to say about this one. Can you imagine the impact these investments could have if they were coordinated in the right areas.

Go here to read more.

Two More Shoes Drop in Greater Cleveland

The Cleveland Plain Dealer reported this morning that Ford Motor Company plans to shut down its longstanding Lorain assembly plant and that Quark Biotech will move its headquarters back to California.

This is disappointing news to say the least. Don't lose hope Cleveland! Don't take it personally. The demise of Ford Lorain has been in the making for a long time. And the biotechs are fickle as hell in terms of where they want to be.

Here are the right questions to ask at a time like this:

1. What is the precise impact on the region of these two situatons under best and worst scenario cases?

2. Are these 100 percent done deals? Is there a way to change or alter these decisions in any way?

3. What are the lessons to learn from each situation?

4. How do we accelerate our regional economic development efforts, provide better forewarning of these situations in the future, and then respond in a more 'powerful and influential way' to them?

Invest in Workforce or Suffer the Consequences

A recent OECD report says that governments must do more to improve the job opportunities for women, older workers, people with disabilities and the low-skilled, says the OECD's latest Employment Outlook. Without more and better jobs for such groups who are under-represented in the workforce, the prospects for economic growth in many countries will be undermined as the population ages, the study warns. A higher proportion of the adult population in work would ease the burden on public finances and would improve social exclusion, it says.

The OECD estimates that unless action is taken to encourage more people into employment and remove existing barriers to job creation, the annual growth of the workforce in its 30 member countries will slow from an average 1.3% over the past 30 years to 0.3% over the next 30. In some countries such as Italy and Japan, the labour force will decline.

Similarly, on current trends, the ratio of the over 65-year-olds to the total workforce will rise from 27% in 2000 to 47% in 2030, straining current pension schemes and threatening living standards.

Are you listening economic developers? This is one to pay attention to.

Read more here.

No Euro for Sweden Just Yet

Sweden will not join the European single currency in the foreseeable future. In an earlier EMU referendum this week, the Swedes voted against joining the Eurozone by a clear majority of 56% vs. 42%. There were 2% blank votes and the voter turnout was high, at 81%. Sweden was the first country to hold a referendum on the euro since the single currency went into circulation last year in 12 of the 15 European Union countries.

Go here to read more.

Downsizing: Different Effects on Different Industries

That is the message from a recent Economy.com analysis. With improved U.S. economic output expected to finally translate into hiring as the year comes to a close, it is a good time to take stock of industries that have suffered through major restructuring since the onset of recession. Given the severity of employment reductions, some hard-hit industries cannot claim that their woes are due to demand weakness alone. For the worst off industries, some supply imbalances clearly were present.

Areas with a large local presence of such hard-hit industries have suffered mightily as a result of firm restructuring. For example, manufacturing firms in the tech-heavy San Jose area have shed around one-third of their jobs, which is similar to the amount of job losses that manufacturers in Detroit suffered when the automobile industry downsized in the early 1980s.

Where the new, leaner industries are situated geographically may well shed light on regional economic performance going forward. When an industry faces weak demand and pricing environments, high-cost operations come under pressure. Manufacturing firms with newer facilities and equipment are more likely to be profitable during periods when input costs are high. Also, those that continue to invest in upgrades and R&D have a more stable employment base than firms that focus entirely on fabrication.

The future of U.S. manufacturing will likely consist of such firms that focus on developing new production processes rather than those that replicate existing ones. Given high domestic labor costs and a well educated workforce, U.S. manufacturing’s comparative advantage lies in developing products, not mass producing them.

Go here to read more. (If you subscribe to Economy.com).

The Jake is the Man in Michigan

Just got word that my good friend Don Jakeway, the former state development director under former Ohio Governor George Voinovich and most recently the President/CEO of the Regional Growth Partnership in Toledo, will head the Michigan Economic Development Corporation (MEDC) starting in October.

Don is the perfect person for the job with his experience in state and regional economic development, coupled with his knowledge of how to work effectively in the political process.

Don, I wish you well.

Go here to read more.

Recovery Apparent in All Major U.S. Economic Regions

It's time for an update on regional economic trends. Signs of economic stability are rather evenly distributed among the nation's four major economic regions.

Payroll employment has leveled off in each of the four broad regions. In a period of rapid productivity gains, income is perhaps a better indicator of overall regional economic growth. So, let's look at what is happening to income growth across the regions.

Th Northeast has experienced the slowest income growth since 2001 because its highest earning industry—financial services—was hit particularly hard by the recession and the corrections in equity markets associated with it. In fact, the region’s total income has yet to rise above its pre-recession level, a sign of the extent of the weakness.

Elsewhere, income growth has rebounded. In the West, income is just back to its previous high. Income is well above pre-recession peaks in the Midwest and the South, although the rate of growth has slowed over the past year. While labor markets in the Midwest are quite weak, the earnings for those still working have risen, helping to support an otherwise beleaguered regional economy. Looking forward, some improvement can be expected in the Northeast, as long as the rebound in equity markets is sustained. Similarly, rising defense procurement contracts and a turnaround in business investment will support income growth in the West once again next year.

At a turning point in the economy, one often must turn to anecdotal evidence, such as that available in the Federal Reserve’s Beige Book. It reports increasingly optimistic comments from communities all around the country. Among its comments this month, it reports that 10 of the 12 Fed districts see moderately improving manufacturing activity. Only the Dallas and Richmond districts fail to see improved manufacturing conditions, due to high exposure to telecommunications in Dallas and to textiles and other nondurables in Virginia and the Carolinas.

Weak business investment poses a more widespread risk to all regions. Should overall demand and prices falter and should firms pull back on their nascent spending on capital equipment, recoveries could be delayed in tech-based regions, such as Silicon Valley, parts of Southern California, the Pacific Northwest, Austin and Dallas, Atlanta, Raleigh, central New Jersey and Boston. Similarly, signs of emerging stability in the industrial Midwest could also disappear with weakened demand for industrial, farm and construction equipment.

A tempered global recovery would hurt the West the most. Its dependence upon exports of tech products, commercial aircraft, timber products and the like makes it the most vulnerable to continued weak global demand.

Overall, the South and West will continue to lead the economy into a stronger recovery through the rest of this year and next.

Go here to read more.

Cleveland Gets New Civic Incubator

The Cleveland Foundation has recently launched a new project as part of its economic development funding initiative. The Cleveland Foundation, in conjunction with five collaborating partners, Business Volunteers Unlimited, Cleveland Bridge Builders, Council Of Smaller Enterprises (COSE), Leadership Cleveland and the President's Council, started the Civic Innovation Lab to provide support, including mentorship, networks, visibility, and funding, to individuals with ideas for fostering economic development in Greater Cleveland.

The Civic Innovation Lab will support projects that produce a tangible and measurable economic impact in the community, such as attracting and retaining talent and resources; encouraging entrepreneurship; increasing international opportunities and economic connections; and creating a vibrant place to live and work. Individuals who apply and are selected into the Lab will be paired with a mentor or group of mentors that will help them finalize and implement their project idea.

The Cleveland Foundation, a public charity dedicated to enhancing the quality of life in Greater Cleveland, is the original and second-largest community foundation in the nation. Its establishment in 1914 is cited as one of 10 events that most heavily influenced the development of the nonprofit sector in the 20th Century and it continues to be a leader in its field. The Foundation has assets of approximately $1.3 billion and in 2002 awarded more than $74 million in grants and low-cost loans to Cleveland area nonprofit organizations.

Go here to read more.

Visit the Civic Innovation Lab here.

Photonics: Manufacturing Plays a Key Role

Manufacturing is a vital component of the knowledge economy. The photonics field is a perfect example of where manufacturing is an integral aspect of a "high-tech" industry. Recently, I read a report by the University of Colorado's Business Research Division that found that 150 of Colorado's 241 photonics-related businesses are manufacturers. Colorado has major strengths in photonics, as well as the Tucson, AZ and Rochester, NY areas.

Read my white paper on Manufacturing in the Knowledge Economy (M@KE) to learn more about what I think about this issue. In a nutshell, we should get rid of the over-used and non-productive "old versus new economy" distinction and adopt an integrated view of our economy. Go here to download the M@KE paper.

Colorado Environmental Business Alliance

Colorado is taking aim at the Chinese market for environmental goods and services. Smart move. There are many opportunities to be had in this emerging market. The Colorado Environmental Business Alliance has forged a workig tie with China.

The Colorado-China Connection is a two-year project that encourages and assists Colorado environmental businesses, particularly small and medium enterprises (SME), to successfully compete for environmental business opportunities in China. Further, the Connection is designed to create awareness and preference, in China, for Colorado environmental technologies, products, and services. This project will build on an existing network of government, university and industry participants joining together to increase the number of small environmental businesses exporting to China.

To learn more about the initiative, click here.

Wisconsin: Needs Results and Attitude Change

The recurring message at a recent Wisconsin economic development forum was that government, business and educational leaders need to take what they have learned in two decades of study and debate and now begin realigning the state's economy for the 21st century.

A statewide survey commissioned by forum organizers found that 85 percent of Wisconsin residents think that the state of the economy is fair or poor, and that 60 percent to 65 percent of respondents didn't really understand what economic programs were in place to help revive the economy.

Sounds to me like Wisconsin needs to do two things: 1) work their plans to get more results; and 2) adopt a "glass is half full" attitude toward economic development. I find that too many places are too focused on their problems and do not give enough attention to their opportunities. Everything changes when you focus on the opportunity-side of the equation. The other point I'd make is don't focus on your programs. Instead, focus on the need that your programs exist to serve. Concentrate on your 'value proposition.' Download my presentation on this subject here.

Go here to read more.

State Development Directors Debate

The chief development officials of Kentucky, Ohio, and Indiana agree that companies shouldn't pit the neighboring states against each another to gain lucrative tax giveaways. Still, they acknowledge that the two states have no plans to halt such practices or cooperate more closely on specific corporate prospects.

"I doubt we'll get to the point where we'll work together on individual projects," Ohio Department of Development Director Bruce Johnson said Tuesday during the International Economic Development Council convention in Cincinnati.

Will Ohio, Indiana and Kentucky be more willing to share information in the future about development projects? Tim Monger, executive director of the Indiana Department of Commerce, doubts the three states would share information on competing projects.

Here is a question I would pose to the three state development directors: "Would you be willing to launch a joint initiative that advances strategic industries that your states share in common, such as automotive?" I think this would make a lot of sense, especially in light of the stiff competition the Midwest is now getting from southern states for automotive deals. Maybe that is one to think about.

Go here to read more.

A Feather in Detroit's Hat

Chicago is losing the headquarters of one of its oldest and best-known corporate names -- and also one of its most profitable --BorgWarner Inc. The world's largest maker of components for automatic transmissions plans to move its corporate headquarters to Auburn Hills, Mich., a suburb of Detroit, to be closer to the automotive industry and to raise its profile among companies it hopes to recruit as new customers.

About 60 workers in Chicago will be offered jobs in the new office, which will be about 7 miles from BorgWarner's Powertrain Technical Center and about 30 miles from downtown Detroit. BorgWarner employs 1,000 people in Michigan now.

The impact on Michigan will be greater than the loss to Chicago. The Michigan Economic Development Corp. said Borg-Warner plans to invest $8.9 million in the Auburn Hills project and create 146 new jobs, including 90 directly on the Borg-Warner payroll. What did Michigan give to land the deal? Michigan promised a tax credit worth more than $2.6 million over the next 10 years to lure the headquarters.

Go here to read more.

New Report on Silicon Valley

High-Tech Start-Ups and Industry Dynamics in Silicon Valley by Junfu Zhang is the latest word on what's happening to Silicon Valley. It was published by the Public Policy Institute of California and you download it here.

Zhang’s research concludes that, collectively, new firms represent a major force in the economic dynamics of Silicon Valley. For example, firms founded after 1990 created almost all of the job growth experienced by Silicon Valley between 1990 and 2001.

Why, then, do we find ourselves in the midst of the current bust cycle? The theory most applicable to the current situation was developed by Joseph Schumpeter in 1911. In The Theory of Economic Development, he explained, “The economic system does not move along continually and smoothly. Countermovements, setbacks, incidents of the most various kinds occur, which obstruct the path of development; there are breakdowns in the economic value system which interrupt it.” And, he argued, these setbacks lead to the development of new ideas, new entrepreneurs rise to the occasion, and soon the cycle begins all over again. The cycle of firm startups, closures, and new start-ups is very much part of the economic development process, and the very entrepreneurs who are in abundant supply in Silicon Valley will make the process happen all over again.

Zhang concludes that start-ups in Silicon Valley have more rapid access to venture capital than comparable firms elsewhere in the nation; that large, established firms spin off more start-ups than firms in other parts of the country; and that the high-tech sector is subject to rapid structural change where “hot spots” of growth may appear in some industries while firms in other industries are simultaneously dying out. He observes that a dynamic labor force has been, and will be, essential to successful adaptation with each new structural change. In sum, human capital, venture capital, entrepreneurial zeal, and product cycles all contribute to the health and success of the economy of Silicon Valley.

Although Zhang makes no predictions about the future, the fact that the region has weathered these cycles in the past, that the basic ingredients are still there in abundance, and that new demands for high-technology products are following on a worldwide concern for secure environments suggests that the prospects are good for yet another rebirth of the valley. Zhang suggests that the dynamics of economic development favor Silicon Valley and that yet another replay of the rebirth part of the cycle lies before us.

The report contains some useful comparative data you will also find useful. It's worth a serious browse.

Is China a Competitive Threat to Japan?

Earlier this year, the Economic and Social Research Institute (ESRI) of Japan produced a report on the role of China in the international economy. You might find the overall conclusions of this report to be interesting.

Question 1: Does China pose a serious economic threat to Japan under the present circumstances? In general, when China is said to pose a threat, a sense of danger is often expressed in the following statements:

(a) China is making great economic progress and will soon become a world's major economic power.

(b) Chinese products have strong international competitiveness, China is going to become the "factory of the world" in the near future.

(c) The increased imports from China cause the hollowing-out of the Japanese industry.

In regard to (a), although the Chinese economy is developing fast, it is necessary to take into account that the GDP in 2001 did not exceed 1/4 of the Japanese and GDP per capita was no more than approximately 1/40.

In conjunction with (b), it is necessary to keep in mind that China has a competitiveness not in every industry, but only in those of labor-intensive goods such as clothing, footwear, textile goods, miscellaneous goods and others in addition to the consumer electronics and electronic components, for example, desktop computers, cellular telephones, DVD players and TV sets assembled with imported core parts.

Concerning (c), the share of China in the total imports of Japan is 16.6% and rising, it is less than approximately 1.3% of the Japanese GDP. Notwithstanding a sharp increase in import of manufactured goods from China to Japan, the Japanese overseas production ratio in all industries does not exceed 14.5%. It can be hardly said high when compared with about 25% of Western industrialized countries'. Besides, production expansion by the overseas affiliated companies leads to an increase in the Japanese exports of intermediate goods to those and, thus, contributes to the growth of the Japanese exports. The Japanese trade with China records a significant deficit, but looking at the trade balance including Hong Kong whose exports is mainly to China, it becomes clear that Japan maintained a surplus of balance of trade until recently. In addition, since China mainly exports low-tech products while Japan exports mainly high-tech products, the Japan-China trade relation is not competing, but complimentary in most of the cases.

According to the ESRI report, China is said to pose no serious threat at this moment. (I would add a comment here. Japan is as interested in selling to the Chinese market as any other country. Sounds like some political soft-peddling in the ESRI report. I suspect the threat is much larger than what the ESRI report portrays.)

Question 2: Will China pose a threat in the future?

The comparative advantage of China lies still in an abundant laborforce, contrary to Japan that has comparative advantage in technology. (I would add in some areas.) For example, in the manufactured imports of the U.S. from Japan and China (out of 10000 items), only 16% of goods from Japan and China compete with each other while 84% is compliment each other. Japan should reinforce the complementarity of the Japan-China trade relation and work on the policy of development without causing hollowing-out by combination of a shift of depressed industries to China and development of new domestic industries.

(My comment is that China will pose a major threat to Japan and will pressure Japan to provide even greater technological and financial support for Chinese economic development in the future in exchange for access to the Chinese market.)

As we attempt to gauge the threats and opportunities associated with China, it is important to consider other vantage points beyond our own view here in the United States. Can a perceived zero-sum game be converted to a win-win game for Japan? That remains to be seen, and this is also the question that the U.S. and other nations should be asking themselves.

Go here to read more. (Note: Only a part of the ESRI report has been translated into English.).

Bureau of Transportation Mapping Center

The Bureau of Transportation Statistics has an excellent online mapping center that can produce maps showing airline activity by airport and many other aspects of air transportation. This is the perfect tool to use in producing maps for business prospect presentations. Go here to learn more about the BTS Mapping Center.

Transportation Sector's Economic Contribution

Transportation plays a major role in our everyday lives. High quality transportation resources are vital to the growth of all sectors of the economy. Transportation factors are a central concern to the industry site selection process.

Just how important are transportation-related industries to our national economy?

They represent $984 billion in final demand to our nation's gross domestic product (GDP), or 10.7 percent of GDP. Click here to learn more about the economic contribution to the transportation sector of our economy, which includes all private and public investments and expenditures on transportation.

You may want to bookmark the Bureau of Transportation Statistics as a future data source. It's a great one.

Online Searchable Auto Supplier Directory

Looking for automotive supplier information by industry and product?

Check out this online company directory by the Society of Automotive Engineers that allows you to search by industry, product or company, and geographic area. Go here.

Implications of Slow Job Growth

Where's the jobs? That is the question being asked in most economic and economic development circles. The answer is that netting job gains and job losses produces an unfavorable overall picture of employment growth. Everyone is pleased to see the economy growing again, but we need to prime the job pump to put a full bloom on this rose.

Today’s labor market weakness should not be taken lightly. For one thing, it has already begun to erode consumer confidence. According to the Conference Board, its measure of consumer attitudes fell sharply in July, mainly because people have become increasingly worried about their jobs (or the lack of them). Obviously, if this continues, it will cause people to cut their spending, which could seriously damage the fledgling economic recovery. It has political implications as well.

Workers have many strikes against them at this time, when it comes to job creation. For one thing the investment boom of the 1990s, combined with rapid advances in technology, especially the growth of the Internet and the ubiquity of computers, has led to a surge in efficiency. Productivity, or output per labor hour worked, is growing much faster than it usually does in an economic recovery—partly because of last year’s rise, which contained the biggest 12-month jump in productivity in about 40 years!

Combine faster-than-average productivity growth with slower-than-average economic growth, and you have a situation where most firms can accommodate the same or increased demand for their products or services with the same or fewer workers. That’s why employment is falling at a time when it should be rising, and why unemployment is rising at a time when it should be falling.

Blue-collar workers, those usually engaged in manufacturing, have long felt the brunt of improvements in productivity, but the technological advances of the past decade or so are now affecting the white-collar cadre as well. Such white-collar jobs as call centers long ago migrated to low-cost areas—first within the U.S., then to other countries where labor costs are well below those stateside. However, the growth of the Internet has enabled companies to send abroad such skilled jobs as writing computer code and software-application maintenance, medical diagnostics, research analysis and treasury management.

According to BusinessWeek, one out of three private-sector jobs is now at risk of being outsourced—and that does not count such back-office functions as accounts payable, marketing and sales. The magazine adds that “as soon as work can be made routine—whether it’s reading an X-ray or creating blueprints—the job can potentially be outsourced.”

You can see this trend in the jobless rate for managers and professionals. They now account for almost one-fifth of the unemployed. At the end of the 1990-91 recession, they were 11%; 20 years ago, little more than 6%. Not surprisingly, most of these people are highly educated; college graduates constitute more than 13% of the unemployed these days. Once a job is lost, it is becoming increasingly difficult to find a new one. Some 22% of the unemployed have been out of work for a half year or longer—one of the largest percentages in the postwar period. It was because of this weakness in the labor markets that the NBER took so long to declare the official end to the last recession.

Workable solutions to this problem are difficult to come up with. While a faster rate of economic growth might eventually force some firms to add to their staffs, the nagging problem of outsourcing will still remain. Legislation preventing companies from shifting jobs overseas goes against our capitalist system; it would also invite retaliation from other countries. Tax incentives to create jobs and penalties for exporting jobs might pass, but again, would be subject to widespread criticism.

What can we do? In the final analysis, the solution is more education. This is the way the U.S. has maintained its lead in the past. To create new jobs while the old ones migrate overseas, our workers must be better trained, and provide more value-added than their counterparts elsewhere. To be sure, there is room for them; the entrepreneurial spirit that has fostered new companies in new industries must not be stifled. This is why economic development needs to give additional attention to worker training and educational issues now.

Go here to read more (Economy.com subscription required.)

Developer Wants Accounting of ED Zone Tax Revenues

It's one of the largest suburban office parks in the Akron area, covering 120 acres in Bath Township along Interstate 77 near state Route 18. Although it is located outside of the Akron city limits, the thousands of workers at the Embassy Corporate Park still have to pay city income tax, thanks to a 1998 joint economic development district agreement among Akron, Fairlawn and Bath Township.

And now John D. Dellagnese III, who operates the Embassy Corporate Park, wants an accounting of where the income tax money is going. He suspects the thousands of dollars in income taxes that businesses in his corporate park are paying are being used against him -- to attract businesses to locate in Akron instead.

Dellagnese says he first asked Akron for records documenting the receipt and disbursement of the tax funds more than a year ago. He didn't get them. So the businessman has now filed a lawsuit in Summit County Common Pleas Court, seeking the release of the documentation and reimbursement for the cost of hiring a lawyer to request the records over the last year or so.

JEDDs -- an idea touted by Plusquellic and now part of Ohio law -- were intended to end contentious annexation battles between cities and townships. In return for being able to collect income taxes from workers within designed economic districts in townships, cities like Akron agree to cease annexation attempts and to provide city utilities to the businesses in those outlying areas. The cities also offer to help market and seek development on the previously undeveloped area.

So, what rules should appy here? My assessment is that Akron should be able to use its tax revenues in any way it sees fits, including to encourage economic development within the City. A deal is a deal. The suburban development got what it wanted, and Akron should be able to use its revenues to strengthen business growth in its city limits. I may be missing something here, but that seems like that is the right answer to this situation. One caution: Akron should not deliberately work to undermine the suburban development. That would not be good for any of the parties concerned. After all, the development is now a revenue generator for the City.

Read more here.

Baltimore Looking at New Cruise Terminal

Can Baltimore increase its leisure travel business in the future? Hum. Sounds like a stretch, but I'm open to some blockbuster ideas that might help. Here's the deal being looked at in the Baltimore area.

Aris Melissaratos, the state economic development secretary, thinks Maryland ought to go aggressively after even more leisure travel business. He wants the state to decide by the end of October whether to endorse entrepreneur Edwin F. Hale's proposal to build a cruise terminal in the Canton industrial area, not far from Interstate 95.

"I personally like that because it allows us to extend the reach of the harbor from Fort McHenry to the Harbor Tunnel crossing," says Mr. Melissaratos.

We are inclined to say, "Go for it." But besides the exact cost - estimates range from $35 million to $50 million - other key questions must be answered. Is the proposed single pier enough to handle the traffic, or should a terminal have two piers? Can enough secure parking be created for several thousand cars?

Read more here.

New Minnesota Opportunity Zones a Plus

The Job Opportunity Building Zones approved by the Minnesota Legislature this year were pushed by Gov. Tim Pawlenty as a way to spur economic development outside the state's largest metropolitan area.

Businesses that start or expand in a zone would be free from corporate income tax and property tax on any improvements, as well as numerous smaller tax breaks, for up to 12 years. They still would pay personal income taxes and property taxes on the land.

The law allows the state Department of Employment and Economic Development to designate up to 10 primary zones across the state. Each of those 5,000-acre zones could be split into 20 noncontiguous tax-free pockets. Designations take effect Jan. 1.

Louis Jambois, a Department of Trade and Economic Development finance official, expects between nine and 14 applications by the Oct. 15 deadline, most from multiple communities like the one that south-central counties are putting together.

So far, so good, say Minnesota community officials.

Read more here.

Latest Retail Update

Retailers continued to benefit from strong back-to-school sales over the Labor Day weekend. Demand was boosted by supplements to cash flow including tax cuts and rebate checks and the cash from record mortgage refinancing a few months ago. Sales were also supported by heavy discounting in the industry, as retailers continued to work to reduce inventories to desired levels. However, the boosts to cash flow are beginning to wane, so sales growth is expected to slow as the month progresses.

The back-to-school season appears to have gone well, although it has been highly competitive. Retailers have been aggressively keeping prices low for some time to court shoppers. The retail sales deflator for GAFO stores (which sell department store-type merchandise, making them comparable to chain stores) has declined 3.9% or more from last year for five consecutive months through July. While making it more difficult for retailers to generate profits given rising labor costs, this confirms that real consumer spending growth remains strong.

Despite the positives, however, there remain significant obstacles that will make it increasingly difficult for chain stores to maintain recent sales gains. Since January, 595,000 jobs have been lost. While there have been some signs of stabilization, overall, labor market conditions remain weak, threatening household incomes and confidence. Wage growth is also slowing, as employers limit their pay raises and shift the composition of pay toward benefits. Consumers remain heavily indebted and have lower wealth than they did in 2000. Confidence remains low. There is a lack of compelling fashions, toys, or other goods that consumers simply feel they must have. In the face of little if any pent-up demand, these factors will limit sales growth.

While cash flow remains strong enough to generate healthy sales growth in the near term, profit gains will remain harder to attain, and longer-term sales growth remains dependent on renewed job creation.

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Useful Report on Clusters

Much has been written about clusters. Here is an abstract of one that I ran across that hits the nail on the head in terms of where it is appropriate to adopt cluster development policies and strategies.

Clusters are at the forefront of economic development theory and practice. Instead of focusing on individual companies, clusters encourage practitioners and scholars to think about regional economies in terms of groupings of related firms and supporting infrastructure. Government, corporate, and other decision makers require a new analytical framework for understanding how clusters enable them to positively affect a large number of firms at a relatively low cost. This paper examines how state and local policy makers in New York identify the members and boundaries of a cluster and promote the regional technological dynamism associated with Silicon Valley. Next, the paper identifies three sets of specific recommendations for how policy-makers can use the cluster concept: to understand a regional economy and the sources of its competitiveness; to promote greater collaboration among regional firms; and to maximize the impact of government services to private industry. Finally, it concludes with a pilot proposal to identify successful examples of cluster policies at the regional level which other policy makers around the state can emulate as well as identify new opportunities for public action.

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Possible Downside of Home Ownership

Is there a downside to home ownership? A recent Economy.com article says there could. This is out-of-the-box thinking that makes us think carefully about how difficult decisions we make in life both help and hinder our path to prosperity.

More people in the U.S. now own the homes in which they live, which is good. Isn’t it? The rationale behind the national push for a higher homeownership rate is that buying a home is considered a sound investment, socially desirable, and aids in preparing for retirement. Still, is it good for the economy?

Besides its beneficial attributes, homeownership can also be associated with higher levels of unemployment due to the lower mobility of labor that results. At a time when jobs are very scarce and home buying is hitting new records, one wonders whether workers are tying themselves down to one particular area at just the wrong time.

The benefits of homeownership are undeniable. Nonetheless, there are drawbacks. Greater homeownership can lead to lower mobility, resulting in higher unemployment. Imagine a world where people can move with ease from one place to another and one job to another, no friction. This world would yield the least structural unemployment. Now, give some of these people a reason to stay in one spot, such as a relatively illiquid investment, like a house. They would no longer be free to immediately go where the jobs are, and as such, they would experience longer periods of joblessness.

If there is an incentive not to move, and having a home that is difficult to liquidate is a definite incentive, then people cannot follow jobs when and if jobs leave. In this manner, homeownership can theoretically result in greater unemployment than would otherwise occur.

The empirical result that higher rates of homeownership are accompanied by higher unemployment has been documented by Oswald (1997) in Theory of Homes and Jobs; it is based on fixed and random effects models considering data from Europe and the U.S. from 1960 to 1990 at the country, region, and state level. The models controlled for location specific effects, isolating the impact of homeownership on unemployment. He found that a 1% increase in homeownership corresponded to a 0.2% higher unemployment rate. The relationship holds loosely for the U.S. and may be a factor holding back our recovery now and may contribute to a slower recovery in the outlook, especially considering the likelihood of higher mortgage rates on the horizon.

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