While the Great Recession is a worldwide event, there are localized exceptions. Do they suggest a path toward recovery? (More)
The Great Reset, Part II – A Present and a Future
This week Morning Feature reviews The Great Reset, in which urban theorist Richard Florida argues that major economic collapses are followed by major economic transformations. Yesterday we considered his precedents: the Long Depression of the 1870s and the Great Depression of the 1930s. Today we examine his analysis of the Great Recession and how he thinks our economy will reset. Saturday we’ll conclude with his proposals for how to ease the transition.
Neils Bohr famously said: “Prediction is very difficult, especially about the future.” Bohr was referring to fundamental concepts in quantum physics that suggest it is impossible to predict specific events or even to know everything about the present. Still, that statement has become an aphorism, and it is a useful caveat to Dr. Florida’s analysis of the Great Recession and the reset he projects to follow it. While Dr. Florida uses widely-accepted statistical data, many economists have challenged his conclusions, just as he challenges theirs. It may be best to consider his analysis as a present and a future, rather than joining the debate over whether he describes the present and the future.
A surprising success?
The Great Recession has undeniably swept across our nation and many others as well. Unemployment, foreclosures, and bankruptcies are up. Housing prices and median incomes are down. Debt crises in Greece and elsewhere threaten the integrity of the European Union. Yet aggregate statistics often conceal as much as they reveal, and Dr. Florida digs into regional and local numbers to emphasize that the Great Recession has not been uniform.
For example, New York City was hit predictably hard by the financial meltdown. The city lost 100,000 jobs in the year following the crash, including 35,000 high-paying jobs in the financial sector. Unemployment reached 10% by 2009, with almost half a million New Yorkers out of work. Dr. Florida quotes Michael Lind of the New America Foundation as one of many pundits who predicted the New York, London, and Frankfurt would finally collapse:
Without the obscenely rich investment bankers and the legions of well-paid retainers who supported their lifestyles, formerly flourishing parts of these former financial capitals may become as derelict as Detroit or the crumbling industrial towns of northern Britain and Germany’s Ruhr region.
Yet they haven’t. Dr. Florida cites statistics that show New York and London not only holding their places as capitals of global finance, but actually gaining over competitors in Asia. And while New York City still has 8% unemployment, that is lower than the national rate and the city has regained 57% of the jobs lost during the crash. Indeed, he suggests the contraction of the financial industry may actually help the city.
He bases that prediction on New York’s economic diversity. While it will remain a global financial center, finance and insurance account for only 15% of New York’s jobs. And although many young financiers have lost their jobs, most have stayed in the city to pursue other opportunities. Dr. Florida suggests their talent and energy may be a boon to other industries that went begging during the heady financial bubble.
Other successes, and failures.
Dr. Florida discusses other cities who have weathered the Great Recession better than the national average, and finds common characteristics. All have diverse economies that offer a wide range of opportunities and attract a broad base of talent. Washington, D.C. also lost fewer jobs and recovered faster than the national average, and not because Big Government swelled under the Obama administration. In fact technology, not government, is the largest employer in our nation’s capital. The city ranks second only to San Jose in high-tech electronics, and third in software development. College towns – most of which also have diverse research and high-tech economies that both attract students and employ graduates – have also done better than average during the Great Recession.
Conversely, cities and regions that relied on a single economic sector have suffered worse than the national average. Manufacturing jobs lost to automation or offshoring have left cities like Detroit and Youngstown urban deserts. A similar fate met cities that were too dependent on FIRE: finance, insurance, and especially real estate. Housing construction and related industries made up a quarter of the economies of Las Vegas, Miami, and Phoenix, and the percentage was even higher in some other Sun Belt cities. Dr. Florida describes them as caught up in “the great growth illusion of development for development’s sake,” building to attract residents to fund building to attract residents. Sun Belt cities now lead the nation in homes “underwater,” where the amount owed on a mortgage exceeds the value of the home.
Patterns and predictions.
The concentration of diversely talented people, Dr. Florida argues, has been the key predictor for how well an area has weathered the Great Recession. National myths aside, our history shows that resets – the bursts of innovation that followed economic collapses and spawned new eras of prosperity – were not achievements of towering individual genius. Instead, they were collaborative efforts that knit new products and ideas into new systems. Dr. Florida argues that those systems, and more importantly the pools of talent in which they developed, were exponentially more than the sums of their parts.
And despite advances in telecommunication, face-to-face interaction remains a key element of such talent pools. Much of not most of their collaboration happens informally, ideas shared in passing over coffee or in other casual settings. In a community where creativity and curiosity are commonplace, even a chance encounter may evoke a breakthrough. It’s not really “luck” when a cabbie gives you the spark of an idea … if you live in a place where cabbies hear innovative ideas all day and may nurture their own creativity in their off hours. Like changes in a localized quantum field, specific events may be unpredictable but the patterns of events are not mere coincidence.
That concept – that innovation emerges from a critical mass of diverse, creative people – is the core of Dr. Florida’s vision for our economic recovery. Just as the Long Depression and its reset gave rise to industrial cities, and the Great Depression and its reset gave rise to consumer suburbs, he predicts the Great Recession and its reset will give rise to the geographic pattern he calls mega-regions, clusters of cities and surrounding suburbs, connected in ways that raise their creative social density to the critical mass needed for a new wave of innovation and sustainable prosperity.
Tomorrow we’ll discuss what those may look like, and how to ease the transition.