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Geography of Opportunity

Geography of Opportunity

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This policy brief asks why some regions in the United States and Europe have grown during the economic crisis while others have lagged.
This policy brief asks why some regions in the United States and Europe have grown during the economic crisis while others have lagged.

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Published by: German Marshall Fund of the United States on Aug 06, 2012
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Summary:
Given the well-docu-mented rise of the emerging world’s superior growth to theWestern average, policymakersand business leaders in thetransatlantic community shouldbe doing all they can to learnfrom the exceptional regions intheir midst. The only four metroareas in the MetroMonitor top 40are characterized by a combina-tion of fast-growing new busi-nesses, population growth, andhigh levels of patented innova-tion and knowledge sectors.The larger question for Westerncountries is how to fashion policyto encourage more of the kind of growth we see in Dallas, Houston,Stockholm, and Stuttgart.
Economic Policy Program
Geography of Opportunity 
by Ryan Streeter 
Why have some regions in the United States and Europe grown during the crisis while others have lagged? And why does it matter to policy-makers and business leaders?
August 2012
1744 R Street NWWashington, DC 200091 202 745 3950F 1 202 265 1662E ino@gmus.org
Introduction
It is common knowledge that Westernnations lag the economic growth rateso emerging countries, and that theeconomic crisis made this trend worseas North America and Europe sueredthe starkest economic eects. Tecrisis exposed systemic aws in thenancial sector as well as consumercredit, housing markets, education,and sub-national governments suchas U.S. states. Policymakers and themedia have understandably ocusedon macro-level policy responses toaddress these and other challenges.Tere is widespread agreement thatpublic policies played a role in creatingthe conditions o the crisis, even i there is requent disagreement aboutwhich policies were the most signi-cant.Another topic has received virtually no attention, although it is arguably  just as important or policymakers andthe media to understand. In Westerncountries, regions exist, albeit only a small number, that perorm morelike emerging countries than Westernones. Tese regions grow at rates wellabove their national average. Why dosome places within a common policy environment outperorm their peersso signicantly? But they are morethan a curiosity, they are a window or policymakers and thought leadersinto the kinds o conditions that mightbe essential to reinvigorating Westerneconomies more generally.Most o the discussion post-crisishas been at the macro level, such asthe macroeconomic eects o taxpolicy, regulatory harmonization,and monetary policy. Tere is alsoa role o microeconomic analysis aswell, especially when it is rooted inthe geographic regions that containlessons or their less-ortunate, andmore numerous, neighbors.We might call these successul regions“geographies o opportunity.” Tey embody the aspirational tendencies o high-growth cities in the Europe andthe United States o yesterday or theAsia, Arica, and South America o today. Tey are characterized by thehigher-than-average per capita GDPand income growth we typically asso-ciate with places where investors look or opportunity, where entrepreneurs
 
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Economic Policy Program
Two key pillars of any aspirationalregion worth its weight aredynamism in its economy andgrowth in its population.
start businesses, and where people move to increase theirhopes o upward mobility. Good indicators o aspirationalcities and regions are population growth (especially amongyoung people), income and job growth, new enterprises andcommercialized innovation, and the whole cluster o quality o lie measures such as a avorable cost o living and goodeducational options.Policymakers, thought-shapers, and business leaders in thetransatlantic community can learn a lot by taking a careullook at the geographies o opportunity within Westerncountries.
The Elite Club: Dallas, Houston, Stockholm,and Stuttgart
At rst glance, Dallas, Houston, Stockholm, and Stuttgartmight seem like an odd grouping, but they have one thingin common: they are the only our Western cities in theBrookings Global MetroMonitor’s list o the 40 strongestmetro economies worldwide.
1
Given that 95 percent o theslowest growing largest metro economies in the world are inNorth America and Europe, the act that these our Westerncities are in the
top
h is noteworthy.Te Brookings ranking is a dierent, and probably moreimportant, way o comparing cities than the more commonindexes o wealth, inuence, quality o lie, and economicactivity, such Knight-Frank Global Cities Index.
2
Suchindexes tend to avor larger, more western cities becauseo the quality o lie and inuence measures that areused (though ewer western cities rank in the top ten oneconomic activity each year).Te Brookings study rather looks at a ew straightorwardmetrics united by one common concern – growth. Whenwe look at income and employment growth, as the Metro-Monitor does, we get a good sense o the trajectory o aneconomy. It’s no surprise that the astest growth is occur-ring in Asia, Latin and South America, and Arica. What
is
 surprising is that two U.S. and two European cities made itin the top 40. It raises the obvious question: what is goingon in those our places such that they are outpacing the
1 Emilia Istrate, Alan Berube, and Cary Anne Nadeau,
Global MetroMonitor 2011
, Brook-ings Institution (December 2011), p. 11.http://www.brookings.edu/metro/MetroMonitor.aspx 2 “Tales of the Cities: Results of the Knight Frank Global Cities Survey,” The WealthReport 2011:http://www.knightfrank.com/wealthreport/2011/global-cities-survey/
average growth rats o their own countries and the regionsaround them?Tese our cities have other things in common besidesranking high in the MetroMonitor list. In act, it is in virtueo the act that they share some important characteris-tics that they are likely to have made it into the top tier o Brookings’ list. Te MetroMonitor notes that these ourWestern cities turned in a solid showing due to their expan-sion in high value commodities, manuacturing, and nan-cial services. But the sources o these cities’ perormance godeeper than this, as we shall see.wo key pillars o any aspirational region worth its weightare dynamism in its economy and growth in its popula-tion. Economic dynamism can take several orms. Oneis entrepreneurial activity understood as startups or new enterprises. Another is the ability to commercialize andexpand innovation (innovation or its own sake is notdynamism). Yet another is an above-average growth rate in jobs in growing sectors o the economy. An above-averagepercentage o children in a growing economy is typically a good indicator. Population growth can happen throughhigh birth rates, positive immigration, or both.
Energetic, Disruptive Economies
Why do Houston, Dallas, Stockholm, and Stuttgartperorm so well? Te answer, rst, lies in their ability tobreak through the average perormance o others withintheir environs when it comes to enterprising activity. Tey represent energetic activity amidst seas o relative economiclethargy. Tey are disruptive not necessarily in the creativedestruction” sense commonly deployed by libertarians butin the sense that they nd new ways o creating income,
 
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Economic Policy Program
 jobs, and growth in a way that makes them more attractivethan their neighboring cities and regions.
Stockholm and Stuttgart:The Power of Patents and Knowledge
ake Stuttgart, or example. When it comes to incomegrowth, the capital o Baden-Württemberg’s economic lieis in eighth place among cities globally that outpace theirnational average, according to the MetroMonitor’s analysis.Stuttgarts 5.1 percent income growth exceeds the nationalrate o growth by 2 percentage points, which is signicantor a European city. According to Eurostat, Stuttgart hasone o the best economic activity rates among large Germancities.
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 So what sets Stuttgart apart? Its rebound in manuacturingis well-known. What is less well-known is the city’s researchand development (R&D) investment compared to the rest o Germany (and Europe or that matter). In the years leadingup to the 2008 economic meltdown (2003-2007), Stutt-gart was the only German city/region other than Dresdento increase its R&D investment, raising it by 25 percent.In 2003, it was already outspending every region in thecountry except Braunschweig in the R&D department, andthen in the 2003-2007 period, Braunschweig ell 23 percent.France looks like Germany overall in this category, as doesthe U.K. overall. No regions in those countries spent whatStuttgart did in 2003, and most have all declined since thenas Stuttgart leaped ahead.
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 What has Stuttgart’s commitment to R&D yielded? OECDdata on patents presents us with a good picture. able 1shows patents per million inhabitants in major Germanmetro areas in 2007, ollowed by the percentage increasesince 2000.Tis type o innovation drives the Stuttgart economy unlikeanywhere else in Germany. Second only to Hamburg ingrowth in patents since 2000, Stuttgart clearly leads in abso-lute numbers by a long shot. In act, among metro areas inOECD countries, only our outpace Stuttgart: Boston (581),
Stockholm (568.2), Minneapolis (543.4), and Helsinki(529.4).
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 Both Stockholm and Stuttgart have airly high percent-ages o population with tertiary education. According toEurostat, the percentage o Stuttgart’s population withpost-secondary education grew rom 21.1 to 25.4 rom1999-2009, behind only Munich and Berlin and higherthan the German average considerably. Stockholm grew rom 27.7 percent to 32.2 percent, also considerably higherthan Sweden as a whole and high overall by OECD country standards.O all European cities, Stockholm is second only to the areaaround Oxord, U.K. when it comes to the percentage o employment in high-tech manuacturing and knowledge-intensive industries. Nearly one in ten working people inStockholm are employed in high-tech, knowledge sectors.Stuttgart, on the other hand, is not especially exceptionalin this regard.
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Rather, it excels in the proportion o researchers overall, which explains its relatively high R&Dinvestments and patents.
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 Stockholm, it should be noted, benets rom a nationalpolicy context more directly than Stuttgart does, thoughboth cities have taken advantage o their relatively avorablenational policy rameworks. Germany’s R&D investment asa share o GDP is rst in the world, and Sweden’s is second.Stuttgart’s R&D culture has buoyed the national numbers
Table 1
CityPatents per millionresidentsPercent increasesince 2000
Stuttgart 478.1 54.7%Munich282.5 51.5%Frankurt201.6 27.9%Berlin173.336.3%Hamburg160.4 66.2%Köln-Bonn113.7 -6.3%Ruhrgebiet 81.1 12.3%

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