In March of 2003, I met Peter Jackson, Academy award-winning director of the Lord of the Rings trilogy, in his hometown of Wellington, New Zealand. Jackson did something unlikely in Wellington, a city of roughly 400,000: He built one of the most advanced filmmaking complexes in the world—a “global talent magnet,” he called it.

There, he could attract the best cinematographers, sound technicians, computer graphics artists, model builders, and editors from around the globe. As we walked past a wall map with pins showing the studio workers’ native countries, the head of digital animation joked that the organization looked more like the U.N. than a film studio. Jackson told me his key lure was to offer exciting, challenging work with a secure future in a city with abundant natural beauty, affordable housing, and an outstanding quality of life for people of nearly every income bracket.

Jackson’s accomplishment in tiny Wellington hasn’t factored into any of the recent debates over business competitiveness, jobs or economic growth—but it should.

American economic experts and policy-makers are rightly preoccupied with the emergence of behemoths like India and China, which offer huge markets, capable workforces, and cost advantages. Unfortunately, they overlook a subtler but even more profound shift in the nature of global competition.

In the past two and a half decades, this shift has taken us from the older industrial model to a new economic paradigm, where knowledge, innovation, and creativity are key. At the cutting edge of this shift is the creative sector of the economy: science and technology, art and design, culture and entertainment, and the knowledge-based professions.

The U.S. is at the forefront of this global creative economy. Over the next decade, it’s projected to add 10 million more creative sector jobs, according to the newest numbers from the Bureau of Labor Statistics. At the present rate of increase, creative jobs alone will soon eclipse the total number of jobs in all of manufacturing. Already, more than 40 million Americans work in the creative sector, which has grown by 20 million jobs since the 1980s. It accounts for more than $2 trillion USD—or nearly half—of all wages and salaries paid in the U.S.

Such remarkable job growth goes far beyond technology and engineering. While the U.S. economy will add 950,000 computer jobs and another 195,000 in engineering, the biggest gains by far will be in health care and education, which will add more than 3.5 million. Jobs for college professors alone are projected to increase by more than half a million. Arts, music, culture, and entertainment will contribute some 400,000 new jobs. That’s twice as many as engineering.

The rise of this global creative economy changes the rules of international competition in four crucial ways.

First, it makes talent the fundamental factor of production. Economic advantage no longer depends on natural resources, raw materials, trade of goods and services, giant factories, or even growing consumer markets. The real source of value creation, and therefore of international competitiveness, is creative talent. Put simply, the places that can produce and mobilize their own creative workers, and attract creative talent from outside, win.

Attracting such talent, from inventor-entrepreneurs David Sarnoff and Andy Grove, to scientists Albert Einstein and Enrico Fermi, was the key to America’s edge in science and technology throughout the 20th century. Today, this global talent pool continues to help drive U.S. growth, with cutting-edge companies from Google and Yahoo to E-bay and Sun Microsystems all founded or co-founded by foreign-born Americans.

But as Jackson’s success in Wellington illustrates, places around the world have stepped up their efforts to skim off talent. China and India are stepping up their efforts to attract back their own top scientists and entrepreneurs, while Canada, Australia, and many European and Scandinavian nations bolster their efforts to attract leading graduate students, scholars and cultural creatives from around the world.

The U.S. should not be worried about losing out on the low-cost, low-skilled end of the global labor market; it should be worried about other countries slowly chipping away at its ability to grow, attract, and retain top creative talent. Any attempt at immigration reform has to make America more friendly, and certainly not any less friendly, to this crucial source of talent and economic advantage

Second, the new playing field makes regions the fundamental economic and social organizing unit of the world economy. True, technology enables the diffusion and decentralization of economic activity, leading to what Tom Freidman likes to call the “flattening” of the world economy. But the tremendous productivity and creativity gains that spring from high density give shape to a powerful counterforce: geographic clustering and concentration.

As a result, the cutting edge of the world economy is taking shape around a relatively small number of regions—places that Bill Gates has aptly dubbed “IQ magnets.” Some of these are enormous and established creative hubs such as New York, London, Paris, and Tokyo. Others are centers of science and technology (the San Franciscos and Bostons of the world), powerful regional centers (think Taipei and Singapore) and diverse talent magnets (from Sydney and Melbourne to Amsterdam and Dublin, Toronto and Vancouver).

This clustering of talent is just as prevalent in the emerging economies, especially India and China, where economic and technological activity is becoming far more concentrated than in the advanced world. A small number of booming mega-regions like Bangalore, New Delhi, Shanghai, Beijing, and Guangzhou are sucking talent from the countryside, connecting to the world economy, and leaving the rest of their countries behind. Within these regions, too—as within U.S. metros—the economic divide between high-skilled and low-skilled is growing.

Third, the very forces of concentration fueling the growth of the global creative economy are also creating powerful new social, cultural, and political divides in the United States. UCLA economist Ed Leamer has dubbed this division “geeks vs. grunts.” But it’s more aptly seen as a growing divide between those who enjoy higher-paying higher-skill work in the creative sector and those who do lower-wage lower-skill service work.

It’s no coincidence that these are the two sectors of the U.S. economy enjoying rapid growth. Alongside its 10 million new creative sector jobs, the U.S. economy will add another 5 million, mostly low-paying, service jobs over the coming decade—including 735,000 retail salespeople, 550,000 food service workers, 470,000 customer service representatives, 440,000 janitors, 375,000 waiters and waitresses, and 230,000 landscapers and groundskeepers. Impressive figures: until one considers that these jobs pay a third of those in the Creative Economy, and half of what manufacturing workers make.

As the U.S. loses another half-million high-paying manufacturing jobs over the coming decade to automation, improved efficiency, and outsourcing, its labor market is essentially cleaving into two distinct economic classes: high-skilled, high-paying creative work and much lower paying, low skill work in the service economy.

The task facing economic leaders of the 21st century is not simply how to spur technology and innovation, but how to recreate the large pool of high-paying but relatively low-skill jobs that were once the hallmark of our broad middle-class society.

Since not everyone can be a scientist, artist, or professional, and since a large number of manufacturing jobs simply will not be coming back, the best strategy may be to elevate the millions of new service-sector jobs our economy is generating into secure, respectable, high-paying jobs. When I asked a group of my students whether they would prefer to work in good, high-paying jobs in a machine tool factory or lower-paying temporary jobs in a hair salon, they overwhelmingly chose the latter, for its more psychologically rewarding, creative work. Indeed, while vocational training programs for machinists go begging for students, cosmetology classes are overfilled.

The point is not that hair-cutting jobs are somehow inherently better than factory jobs, but that our only choice for avoiding a two-class society is to make these sorts of service economy jobs better, higher-paying middle class jobs. And these personal service jobs—manicuring, landscaping, massaging, and so on—are the ones least likely to be vulnerable to outsourcing.

There are those who say that market forces conspire to keep wages for these jobs low, and others who say that the only way to improve them is with massive government intervention. But companies all across the United States and the world—from Starbucks and Whole Foods to Target and the Container Store—are devising strategies to upgrade service work. They are bumping up pay and benefits, and enabling employees to use their creative talents to serve customers better, not to mention add to the bottom line.

Perhaps the best example is Best Buy, which employs 90,000 people and is the world’s largest specialty retailer of consumer electronics, with annual sales of some $25 billion. Taking a page from Toyota’s much-lauded management system, Best Buy CEO Brad Anderson has made it his company’s stated mission to provide an “inclusive, innovative work environment designed to unleash the power of all of our people as they have fun while being the best.”

Employees are encouraged to improve upon the company’s work processes and techniques in order to make the workplace more productive and enjoyable while increasing sales and profits. In many cases, a small change made on the salesroom floor—by a teenage sales rep re-conceiving a Vonage display or an immigrant salesperson acting on a thought to increase outreach, advertising, and service to non-English-speaking communities—has been implemented nationwide, generating hundreds of millions of dollars in added revenue.

Best Buy’s Anderson understands that harnessing the full power of the Creativity Economy means more that implementing new technology and designing captivating new products. He likes to say that the great promise of the creative era is that, for the first time in our history, the further development of our economic competitiveness hinges on the fuller development of human creative capabilities. In other words, our economic success increasingly turns on harnessing the creative talents of each and every human being, regardless of sex, age, race, ethnicity, or sexual orientation.

Fourth, the creative economy is giving rise to even more extreme divides globally between the relatively small number of advantaged regions and the rest of the world. Friedman writes that: “You no longer have to emigrate in order to innovate.” But for the vast majority of the world’s population, that doesn’t hold true. Even as world-class scientists return to exploding creative centers in China and India, the poorest countries and regions around the world continue to export more than half of their scientific and engineering talent to the advanced economies, according to a recent World Bank study. Economic disparity is rising as powerhouse creative regions like San Francisco register rates of income and housing inequality unseen since the 1920s. Incomes in Beijing and Shanghai have risen at three and a half times those of rural China.

So while it’s crucial to spur investment in science and engineering, and to lessen the growing gaps in the international technology talent base, business and government leaders must also recognize that the leading sources of job growth in the creative economy come from sectors outside of high-tech. To continue down the current path will mean far greater regional concentrations of wealth, mounting economic inequality, growing class divides, and eventually worsening political tension and unrest within countries and on a global scale.

It’s time to wake up to the new realities of the creative economy, and stop developing policy for a bygone industrial age. Our only path forward is to make the creative economy work for us—by undertaking regional, national, and global efforts to harness the creativity of each and every human being, aligning the further development of human creative capabilities with the further growth and development of our economies. They did it in Wellington; the challenge of our time is how to do it not just in one region or even one country, but on a truly global scale.

—

Richard Florida is the Hirst Professor in the School of Public Policy at George Mason University, and the author of The Flight of the Creative Class (with a new edition in paperback from HarperCollins, Fall 2006) and The Rise of the Creative Class (Basic Books, 2002). Visit www.creativeclass.org for more information.

Economic growth is terribly important. Small differences in growth rates eventually overwhelm most other considerations, so the clustering and innovation externalities that create growth differences deserve far more public attention. Unfortunately most people yawn at growth theory; they prefer stories about conflict, status, moral fiber, heroes, and epic changes.

Thank goodness Richard Florida has written a national bestseller on economic growth, calling attention to the crucial externalities. But curses, Florida has done this by telling people the kind of stories they want to hear. Florida tells us that one side in today’s culture wars is very right, while the other side is very wrong; our wealth, as well as our morality, is at stake in the culture wars.

While growth might once have come from boring stuff like raw materials, trade, giant factories, distribution networks, and organizational conformity, Florida says, an epic revolution over the last half century has put growth in the hands of bohemians with diverse and unusual dress, speech, hygiene, work hours, and sexual practices.

These “bizarre mavericks operating at the bohemian fringe” are now “at the very heart of the process of innovation,” fueling a core creative class “in science and engineering, architecture and design, education, arts, music, and entertainment,” and “creative professionals in business and finance, law, healthcare and related fields,” in all totaling one third of U.S. workers. Growth is thus strongest in bohemian cities, and we should worry that foreigners will steal our bohemians if we drift from good progressive policies like gay marriage or art and education subsidies.

How did Florida conclude that economic growth among millions of apparently conservative lawyers, doctors, and accountants is all really driven by a few wild bohemians? First, Florida learned that most economic growth comes from changes in how we do things, rather than the accumulation of physical objects. Second, Florida noticed that the dotcom boom favored cities harboring software folks and new-media artists, whose cultures had unusual dress, speech, hygiene, work hours, and sexual practices. Finally, Florida unified all this under a warm and fuzzy concept of “creativity.”

You see, growth comes from changing processes, and such changes can be called “creative.” So since bohemians are the most “creative” folks around, Florida concludes bohemians must drive economic growth. After all, creativity “is not something that can be kept in a box and trotted out when one arrives at the office.” The muses of creativity favor “individuality, self-expression, acceptance of difference, and the desire for rich multidimensional experiences” much more than “the homogeneity, conformity, and `fitting in’ that defined the organizational age.”

Florida concludes that the economy has been learning to foster bohemian free-spirits, to gain from the innovation they produce. In fact, conformity is so old-school that “it’s almost impossible to be a non-conformist today because conformity is no longer an issue.”

This is a Star Wars vision of creativity: “Feel the force, Luke; let go of your conscious self and act on instinct.” And it is just as much a fantasy, like the fantasy that artists and academics feel no conformity pressures.

The truth is that the artistic creations or intellectual insights we most admire for their striking “creativity” matter little for economic growth. Instead, most of the innovations that matter are the tiny changes we constantly make to the millions of procedures and methods we use. And changing these procedures does not require free-spirited self-expression. Instead, it is quite natural for people to constantly think about tiny changes to their procedures as they follow those procedures. In fact, we imagine far more such changes than we can afford to pursue.

What we lack is not more suggestions for change, but better ways to identify the most promising suggestions, and ways to encourage people to pass suggestions on to those who can best act on them. If the world has become more “creative,” it is mostly because our social institutions do better at these tasks; bohemian self-expression has little to do with it. For example, while I am often considered an especially “creative” scholar, that is not usually high praise, and to succeed in academia most of my graduate students and I have had to learn to be less creative than we were initially inclined to be.

We see a steady stream of people like Florida, each declaring that we are in the midst of yet another grand revolution where all the old rules have changed, each such revolution supposedly as big as the industrial revolution. I fear people have become desensitized by this stream; they know that life has not changed that much over the decades, and most people have adapted just fine while remaining completely ignorant of these supposed revolutions.

I fear this desensitization because (creative scholar that I am) I suspect that we will soon see a revolution that really is as big as the industrial revolution. Most people don’t realize just how huge the industrial revolution was—in fact, only two other changes in human history have been even remotely as big. People may need a lot of help adapting to a revolution this big.

A postcard summary of life, the universe, and everything could go as follows.

In a universe that was doubling in size about every ten billion years, life and animals appeared on Earth. The largest animal brains then doubled in size every thirty million years. About two million years ago humans achieved important brain innovations, and the number of humans then doubled every quarter million years. About ten thousand years ago we learned to farm instead of hunt, and the human sphere then doubled every thousand years. Finally the industrial revolution occurred, and the world economy has since been doubling every fifteen years.

Our history has thus been a sequence of steady exponential growth modes, with sudden transitions between them. Could yet another new mode appear soon, growing even faster?

Looking at the number of doublings each previous mode experienced before the next mode showed up suggests that a new mode should appear sometime in the twenty-first century. Since each mode grew over one hundred times faster than the previous mode, the next economic mode should double every week or two. And since each transition has taken less time than the previous doubling time, the next transition would take less than fifteen years.

We can even imagine what might cause such a dramatic transition: smart machines. Simple growth models suggest that an economy with intelligent machines could grow very rapidly indeed, and induce rapidly falling human wages. Clearly this scenario could involve enormous changes. If we foresee such changes and people listen to us, perhaps people could better adapt to those changes. Alas, given the steady stream of “revolutions” people hear about, such as Florida’s “creativity” revolution, people may well not listen when it really matters.

For more on this next revolution, see:

http://hanson.gmu.edu/bigthing.pdf
http://hanson.gmu.edu/EconOfBrainSimulations.pdf

—

Robin Hanson is associate professor of economics at George Mason University.

Richard Florida writing about the Creative Class is a lot sexier than your average economist writing about Skill Biased Technical Change. Sex aside, these two ideas speak to the same important development. In what follows, I will argue that this development dictates a different kind of education. But I will also explain why education alone—even the right education—will not prevent destructive levels of American income inequality unless it is accompanied by conscious government intervention—for example, government provision of health insurance.

The Creative Class and Skill Biased Technical Change both describe a deep shift in the structure of employment. Until fairly recently, the U.S. labor market had many jobs that paid good money for people who could carefully follow instructions—what cognitive psychologists call “rules-based” tasks. With the advent of computerized work and offshoring, these rules-based tasks are fast disappearing. If a job can be fully expressed in rules—withdrawing money from a bank account or issuing an airline boarding pass—it can and will be programmed for a computer. If most of a job can be expressed in rules, the rules can be explained to someone in the Philippines who will do the job for much lower wages and so the job will move offshore.

Many moderately skilled jobs are subject to this two-pronged attack. Call center work that moves offshore is heavily scripted—“rule-like”—while other call center work is lost to speech recognition software. Manufacturing assembly line work is lost to both offshore producers and to robots. The preparation of basic tax returns is lost to offshore accountants and software like TurboTax and TaxCut.

The result is that too many moderately skilled people are chasing too few moderately skilled jobs with a resulting downward pressure on wages. Richard Florida quotes the CEO of Best Buy as wanting an “inclusive, innovative work environment.” I can’t speak to the work environment but where I live Best Buy seems to be starting people at about $8.00 an hour.

Viewed from this rules-based perspective, creativity is knowing what to do when the rules run out or there are no rules in the first place. It is what a good auto mechanic does after his computerized test equipment says the car’s transmission is fine but the transmission continues to shift at the wrong engine speed. It is what a good supermarket manager does when she chooses words and body language to convince her staff to treat customers as important people rather than annoying nuisances. We often think of creativity in grander terms—Einstein, Sarnoff and the other people Florida mentions. But for our economic future, this broad-based, if less brilliant, creativity is at least as important. As of 2005, the United Kingdom had produced 67 Nobel Prize winners while Japan had produced only a dozen, but I know on which economy I would put my bets. [1]

If I am right in this judgment, an educational system that stresses creativity is at least as important as an attractive environment for the high IQ types. Consider, for example, one part of education that everyone stands up for—how to teach problem-solving skills.

In the workplace, solving a problem usually involves two steps. First, parse a messy set of facts to determine what technique applies. Second, execute the technique. In the classroom, “problem solving” is often defined as the second (rules-based) step and the first step is ignored. I firmly believe that an algebra student needs to know how to solve a system of two equations and two unknowns. But once the student is in a real job, she won’t be paid to solve the equations by hand—a computer will solve the equations. Rather, she will be paid to recognize when a two equation system is a good way to answer some complex question. Teaching this kind of recognition looks more like project work or a business school case than it looks like assigning the first five problems at the end of the chapter on simultaneous equations where choosing a solution technique isn’t much of an issue.

So we need to introduce more real problem-solving into education. But as I suggested in the beginning of this essay, even the best education will not solve the basic distributional problem now facing the country. Any economist will tell you that rising labor productivity is the key to rising living standards. As we now can see, however, that statement only holds in the aggregate: the distribution of the rising living standards is always up for grabs.

Between 1989 and 2004, labor productivity rose by a total 42 percent. Over the same years, the median income of male college graduates rose from $51,000 to $53,800 in 2000 and then fell back to $51,000. By contrast, analysis by Thomas Piketty and Emmanuel Saez show that over these years, the dollar figure defining the 95th percentile of wage and salary income reported on federal income tax returns rose from $107,000 to $125,000 while the 99th percentile of wage income rose from $194,000 to $251,000 (all figures are in 2004 dollars ). [2] In other words, most of the recent gains in productivity are accruing to the very top of the distribution.

It was not always thus. In the 1950s and 1960s, median family income tracked rising labor productivity very closely. In the quarter-century after World War II, median family income nearly doubled in real terms. Many more people could afford a house, car, etc. and these income gains, more than falling inequality, were the basis for growth of the American middle class. If most productivity gains now go to the very top of the income distribution, mass upward mobility—a central part of American life—will evaporate quickly.

Richard Florida suggests that today’s rising inequality reflects the free market at work. He is likely right, and had an unfettered free market been at work in the 1950s and 1960s, the average family would have not seen its income rise as much as it did. But in those days the free market was constrained by a set of institutions and norms—unions, a strong minimum wage, a post-World War II attitude in the business community that steady wage gains helped to keep Communism at bay, and so on. Over time, those institutions and norms have eroded, and a strong productivity-earnings connection has eroded along with it for most workers.

Thus the Creative Class and Skill Biased Technical change require a new kind of education. But they also require a new institutional structure to distribute productivity gains in a reasonably equitable way. Markets, like every other institution, rest on the consent of the participants. If enough people come to see the U.S. job market as stacked against them, all of the nation’s institutions will be at risk.

Notes

[1] As reported on: http://www.answers.com/topic/nobel-laureates-by-country.

[2] The reported productivity numbers have been deflated by the Personal Consumption Expenditure Index, rather than the normal GDP deflator, so that productivity and wages are being deflated on the same basis.

—
Frank Levy is Rose Professor of Urban Economics in MIT’s Department of Urban Studies and Planning. Along with Richard J. Murnane, he is the author of The New Division of Labor: How Computers are Creating the Next Job Market. Levy’s recent papers on computerized work and the non-offshoring of radiology can be downloaded at web.mit.edu/flevy/www.

For one such as myself, with a critical bent, it is disappointing not to find more with which to disagree in Richard Florida’s essay. In particular, I agree with Professor Florida’s first three points, though not the fourth. Here are the points of agreement:

1. Compensation for work in the US is having, and will continue to have, an increasingly large “creative” component.
2. The creative/innovative/talent-based jobs have historically been highly clustered geographically, and that clustering is not likely to be materially affected by the communications technologies of the New Economy: the cell phone, e-mail, and the Internet.
3. Talent is far from equally distributed, and as talent becomes a larger component of compensation, inequality will inevitably rise, and with that comes deeper and different schisms in social relations, politics, and culture.

With all that agreement, I think I can still find something useful to say: The word “creative” as used by Florida is an ambiguous term that I think to some extent takes us in the wrong direction, since in some ways it overstates the break from the past, and in other ways it understates the seriousness of the problems that lie ahead.

I prefer the word “talent” to suggest abilities that some of us have, but others don’t, and can never acquire. That’s the problem. There are going to be winners and losers, and there is little that we can do about it. When Professor Florida writes, “Our only path forward is to make the creative economy work for us—by understanding the regional, national, and global efforts to harness the creativity of each and every human being, aligning the further development of human creative capabilities with the further growth and development of our economies,” he joins Pangloss in turning something alarming into something benign.

But first, we should understand that, in some ways, this isn’t new. The transfer of tasks from humans to machines is the foundation of the productivity advances that have turned a subsistence pre-industrial world into the bountiful reality enjoyed by those lucky enough to live in the developed, industrialized world today.

In the 20th century, it was the mundane repetitive manual tasks that were transferred to machines. While that process continues today, something new is happening: mundane repetitive intellectual tasks are being transferred to personal computers. Of course, clerks have been helped for a very long time by the abacus, the slide rule, the time clock, and punch card tabulators, all of which gave way to mainframe computers in the 1950s. But the personal computer and the Internet represent a giant leap forward. What is new is the cheapness, size, power, and ubiquity of the PC.

When the transfer of tasks to machines or to computers occurs, what’s left for humans to do? That’s the critical question.

As it turned out, the mechanization of manual work in the first seven decades of the 20th century left plenty of good jobs for workers in manufacturing in the United States. After all, someone had to operate that new equipment, and those operators were well paid because they were so productive. Though the productivity gains that allowed a few to do the work of many was a force for fewer jobs, that was offset by the increased demand for workers to make the vast panoply of new products that came from American workshops and laboratories. The decline in production jobs in manufacturing from the peak of 14.5 million in 1979 to only 10 million today is partly from the movement in jobs overseas, partly from a burst of productivity since 1995, but mostly from slower product innovation that has not kept pace with the usual productivity gains.

Innovation, standardization, and mechanization are the steps in the process. Innovation creates new jobs. Standardization and mechanization raise productivity and therefore eliminate jobs. The outcome depends on which is occurring more rapidly.

That’s looking backward. The future may be very different. The computerization of mundane intellectual work has a character that is different from the mechanization of mundane manual work. I pose the problem by asking the rhetorical question: Is a personal computer like a forklift or a microphone?

Both the forklift and the microphone require operators, which creates work. But the kinds of operators are very different. It doesn’t matter much who drives the forklift, but it matters a lot who sings into the microphone. Think about the forklift first. You might be a lot stronger than I, but with a little bit of training, I can operate a forklift, and I can lift just as much as you. Thus the forklift is a force for income equality because it eliminates the strength advantages some have over others. That is decidedly not the case for a microphone. We cannot all operate a microphone with anywhere near the same level of proficiency no matter what is the amount of training. Indeed, I venture the guess that I would have to pay you to listen to me sing, not the other way round. And I seriously doubt that a lifetime of training would allow me to compete with Springsteen, or Pavarotti.

The effect of the microphone and mass media has been to allow a single talented entertainer to serve a huge customer base and accordingly to command enormous earnings. Thus, as opposed to the forklift, the microphone creates a powerful force for inequality. I don’t mean necessarily a winner-take-all contest, as in some “creative” enterprises like entertainment. What I mean is that the computer has a huge impact on the productivity of some knowledge workers, but much less on others. The forklift attenuates genetic differences; the microphone amplifies them.

A personal computer is both a forklift and a microphone. Clerks in McDonald’s no longer have to be able to read or compute—they only have to recognize the picture of a hamburger on the cash register. That’s the forklift. It doesn’t much matter who punches the buttons. Thus your intelligence advantage over me is eliminated by the computer, just as your strength advantage was eliminated by the forklift. But for many other operations it matters enormously who types on the computer. One example is computer programming. The vast majority of people are incapable of producing commercially viable computer code. That’s the microphone. It amplifies your natural advantages.

Computer technology may be taking us into a future where there are a few very talented, very well-paid people, and the rest of us are doing the mundane computer-assisted tasks which don’t require us to read, write, or even think very much. Just push the right button now and then.

Thus the information revolution may be a powerful force for income inequality by raising the compensation for natural talents and also the interaction between talent and training. It is the interaction between talent and training that is particularly difficult to deal with. If talent and training had additive effects on earnings, then compensatory education for the disadvantaged could be a low-cost solution for income inequality problems. But if training is much more effective for the talented, the talented will naturally receive more of it, and the amount of compensatory training that is needed to equalize incomes may be enormous and a great social waste—think of me and Pavarotti.

Thus I disagree with the entirely optimistic tone of Professor Florida’s essay. I also disagree with his fourth point:

1. The geography of wealth globally is being driven by the increasing role of talent in the production process.

Most of the growth in the developing countries, including China, comes from old-style manufacturing, not post-industrial intellectual service work. The geographic concentration of growth along the coast of China is not something new at all. It parallels the geographic concentrations created in the Industrial Age in which a very large fraction of GDP originated within 100 miles or less of major waterways, allowing manufacturers to get their products cheaply to faraway markets.

Better, I suggest, to think of there being two distinct forces that are changing the economic landscape. (1) The economic liberalizations in China, Mexico, Brazil, Indonesia, Russia, India, and so on have created huge arbitrage opportunities that allow the transfer of mundane manufacturing from the high-wage countries of North America and Europe. (2) The United States, Japan, and Northern Europe can no longer rely on growth in manufacturing and are stumbling into a post-industrial age. The nature of that age is being fundamentally altered by the personal computer and the Internet.

—
Edward E. Leamer is director of the UCLA Anderson Forecast. Dr. Leamer holds the Chauncey J. Medberry Chair in Management at UCLA Anderson, along with joint academic appointments in the departments of statistics and economics.

Wow! What an incredible dialogue to be a part of. I could write all day in response to Frank, Ed, and Robin’s fantastic comments. But then what would I have to say later? I have to save something for the next rounds. And, anyway, the back-and-forth will undoubtedly be a great way to elaborate on ideas and clear up misunderstandings.

But before launching into it let me say thank you to Frank, Ed and Robin for their terrific essays. I’m a firm believer that you learn the most from your critics; they force you to really think through the weaknesses and limits of your concepts and analysis. Good critics always make your own work stronger. Second, props to the editors for pulling this all together. Especially in this day and age of polarized dialogue, we need just these kinds of thoughtful exchanges and Cato Unbound is doing quite a service by making them happen.

I agree with Frank Levy’s assessment of our education system. But I must confess I agree with lots of what Frank has to say and write. I have virtually everything he has written, and my ideas and concepts draw from his work. Without fail, the first question I get everywhere I speak is always something to the effect of: “Isn’t the main problem our education system, which squelches people’s creativity?” I’m no education expert, but I have to agree. Sometimes I think our great research universities will save us, but then I recall what the always-prescient Peter Drucker liked to say. He said, more or less, that the university won’t “survive” the transition to knowledge-based capitalism. Strong words, I know. And I’m not sure I totally agree. But Drucker was far more often right that wrong about these sorts of things.

That short comment keeps ringing in my ears. We have a big problem with education in this country and around the advanced industrial world. America currently has the advantage because our system is less fixed and rigid than most others. People aren’t straight-jacketed here. Our system is relatively open and people can enter at various points. It’s not a “one mistake and you’re out” system. But Frank is absolutely right when he says that an education system that encourages creativity is at least as important as an attractive environment for creative types. I couldn’t agree more.

Recently, I had a conversation with my public policy students about the globalization of talent. Like the members of Tom Friedman’s daughter’s Montgomery Blair class, they’re a veritable United Nations. What my international students said shocked even me: They had come to the United States to pursue graduate education and early career opportunities. But, to a person, they said they would return home when they had children. Why? Because their home countries put more of a premium on education, learning and development early on.

So I take education seriously. Our current system, as Bill Gates likes to say, is badly broken. It’s not teachers’ fault, by the way. Most teachers are highly motivated people. A recent Gallup Study shows that one of the keys to successful schools, successful learning, and successful students is motivated and engaged teachers. Makes sense. The same is true of companies and organizations.

It’s time to stop tweaking the education system. It needs a major overhaul—bigger I think than the birth of public education, the rise of the modern research university, the land grant system, federally-funded research, and the GI Bill combined. The entire framework of education has got to change. We have to stop confusing investments in learning and education with investments in school buildings. Most learning, in fact, goes on outside of schools. Like Frank says, we need an education system—a system for learning, discovery and engagement—that activates and enhances human creativity rather than squelching it. The place that develops this system, whatever place that is, is going to gain a huge advantage in the Creative Economy. The US has some advantages but is far from immune to competition on this front. Sooner or later, some place somewhere is going to figure this out, and then … watch out.

Like Frank Levy, Ed Leamer is someone I have learned a great deal from. Everyone out there who cares about the global economy must read his incredible review of The World is Flat. It’s the best thing out there. Ed draws a distinction between creativity and talent. I agree that virtually everyone has a talent and that some are more talented in some things than others. But the main point I am trying to make is that each and every one of us has tremendous creative potential—and a ton of it is being wasted across the economy and society as a whole. I’ve thought a lot about this and it’s something we can come back to later in the discussion.

I talk a lot about both creativity and talent in my work. My earliest papers in this vein, before I had come up with the notion of the creative class, were about talent. Talent is at the core of my theory and one of my 3 Ts of economic growth—the other two being technology and tolerance. I think all three are crucial components of a prosperous Creative Economy. I come from a technology and innovation background. Most of us from that school of thought liked to think that technology is the main driver of economic growth. We’re all heavily indebted to Robert Solow and Paul Romer. I later came across the work of Robert Lucas, and his incredible essay on the mechanics of economic growth, where he identified human capital externalities as the key factor in growth—a concept which he later credited to the great Jane Jacobs. So, clearly, I believe talent matters. As a short side note, I should add that my own measure of the creative class is a talent measure. But it’s based on jobs or occupations—what people actually do—rather than the more conventional education-based human capital measures.

This brings me to the third T: tolerance. This is the one people like to argue about, but the one I think we still need to better understand. Where most economists take technology and talent as stocks or endowments that are fixed in various places, I argue that they are flows. So what we also need to understand is what feature(s) of some places enable them to attract a disproportionate share of these flows. That means more than simply an environment that is attractive to “creative types.” It means an eco-system which harnesses and mobilizes this creativity and talent across the board. I always like to say that creativity does not know any of the social categories we have imposed on ourselves—it cuts completely across gender, race, ethnicity, sexual orientation, and so on. So being an open place, an open system so to speak, matters a lot here. It matters basically because it enables you to harness more talent, more creativity across the board—a point I’ll come back to later.

Like I said, I do think creativity is something that every human being has, in one form or another. Sure, peoples’ talents differ. But every one of us has potential or latent talents. The key—and the most difficult thing for us to do as a society—is to harness and mobilize that talent or creativity across the board. The places that do will benefit immensely from it. In fact, in Flight of the Creative Class I say the biggest gains in terms of growth will not flow to places that only tap high-end creativity—whether that’s Silicon Valley in tech, LA in entertainment, or New York or London in finance—but that the key for the future will be to tap creativity from across much broader segments of society. I call that a shift from the Creative Economy, where we are today, to a Creative Society, where we need to be in the future. That’s also something we can come back to later.

Costs, as Ed says, are a critical part of the competitiveness equation. I could not agree more. He’s one of the world’s best trade economists and I agree with him about the arbitrage going on in production. My guess is I wasn’t clear enough in my original essay. I meant to emphasize that talent is incredibly concentrated in China and India—not that their advantage in manufacturing was talent-driven.

With one of my Chinese students I have looked in detail at Chinese data at the regional level, and the concentration of talent in China is even more uneven than in the United States. The large mass of highly educated people in China is clustered in a corridor from Beijing to Shanghai. My point here is that the world is far from flat, and that talent, creativity, and innovative resources are incredibly concentrated. And not just in the advanced countries, but often even more so in the developing world. The free market, left to its own devices (I want to reiterate), is generating greater concentration, greater unevenness, than most people care to talk about. As Ed and I agree, the myth of a flat world does not help at all here. His review of Friedman’s book says it better than I ever could.

Robin Hanson, my George Mason colleague, picks up on several threads in this debate. The first is the importance of process. I could not agree more. My broad body of work has always stressed the importance of process innovations. I wrote a book with Martin Kenney in 1990 about the limits of the US breakthrough system of product innovation and another in 1993, also with Kenney, on the success of Japanese transplant companies in America based on their process innovations.

I think a large part of my theory of creativity is about the cumulative impact of small process innovations—the unleashing of human creativity from the ground up. My father was a factory worker. He worked in an eyeglass factory—Victory Optical in Newark, New Jersey—from the day he turned 13 until he was 65, save for a tour of duty as an infantry soldier in World War II. He worked his way up from a factory worker, to a foreman, to one of the plant’s supervisors. When I was young, I always wanted to see the place my dad worked on Saturdays (when the factory was running over time). He’d take me as a special treat some times.

I remember standing there on the shop floor, wide-eyed, transfixed, fascinated by the machines and technology all around me—by the machine tools, plastic injection molding equipment, electro-plating vats. My father would see my eyes, focused like lasers on these big beautiful pieces of “high-tech” (at the time) equipment. He would tap me on the shoulder and say: “Richard, It’s not the machinery that makes this factory great. Not the technology or the equipment. Anyone can buy that. This is old stuff. The key is the knowledge and intelligence and creativity of the men who work these machines.”

Later, I heard CEOs from Jack Welch and Carley Fiorina to Best Buy’s Brad Anderson say much the same thing. It’s human ability, human creativity, that matters. As a young professor, I studied firsthand Toyota and Honda and all of the Japanese manufacturing plants that had moved to America. What those companies always understood is that the key source of their competitive advantage lies in tapping the knowledge and intelligence of their factory floor workers. They did this through continuous improvement, or kaizen, and other mechanisms and techniques.

Call me an eternal optimist, but these experiences and many, many others have led me to believe that there’s a whole lot more creativity and talent out there that our organizations, regions, and societies are currently harnessing. Not just at the top end, but across society as a whole.

Robin also picks up on the relationship between culture and economic growth. This, I think, is the most important question in front of us today, both intellectually and politically. We have a very one-sided view of culture. Most theories of culture and economic growth—from Max Weber’s Protestant ethic to Dan Bell’s cultural contradictions of capitalism—argue that culture plays an important role in constraining, focusing, and motivating human behavior. We need culture to control us, to channel our efforts, to make us work harder, save more.

But there’s another side to the culture and economic growth equation, one which I think deserves a hearing. Culture works to liberate human productive capabilities as well. It’s not that gays equal growth, or that more bohemians make a place more innovative. Rather, an open culture, one that encourages and fosters self-expression, is a key ingredient in innovation, creativity, entrepreneurship, and ultimately growth. Open places encourage and foster new ideas. They attract new and different kinds of people. Most of all, they allow people to develop according to their own interests and purposes and to express themselves. I have no interest in making a culture wars argument. Far from it. I’m a political independent, with no stake in culture wars or political party issues whatsoever. The members of my research team, as I’ve said before, cross virtually the entire political spectrum. What we share is a penchant for empirical analyses of the causes of economic growth.

When I speak to cultural audiences, the first thing I do is apologize for my lack of background in cultural issues. I’m a student of economic growth, I say. And I came to cultural issues late in academic mid-life, not because I had a unique interest in them, but because I found them to explain more about economic growth than standard economic variables alone can explain. I’m not the only one. Ronald Inglehart of the University of Michigan and Marcus Noland of the Institute for International Economics, in independent research efforts, have each found that countries with more open attitudes (particularly toward gays) have better rates of economic performance.

I think it’s simple really. Openness matters. It’s culture’s ability to promote self-expression, critical thinking, new ideas and new ways of doing things that really matters to innovation and economic growth. I’ve used measures of revealed locational preferences to get at this—the Bohemian Index, the Gay Index, and so on. They’re just a first step. We need much better measures and much better empirical analysis. But my own work along with that of Noland, Inglehart, and others convinces me that something’s there.

My own work says it is our attitudes toward self-expression, openness, and tolerance that have been America’s secret weapon in economic competition. For decades, even centuries, we have been the world’s most open and tolerant country, enabling us to attract innovative, creative and entrepreneurial talent from across the artistic, technological, and economic spect6rum—and to motivate our own people to achieve more.

Rather than flogging the culture wars issue, it’s critical that we develop and understand the facts about how culture—in this case openness, tolerance, and self-expression—affect innovation and economic growth. In my humble estimation, it’s the single biggest issue that warrants new ideas, new analysis, and new explanation in the fields of innovation and economic growth.

Thanks again for the opportunity. You’ve heard enough from me. In the interest of generating a little innovative thought, let’s open it up.

Richard writes:

It’s not that gays equal growth, or that more bohemians make a place more innovative. Rather, an open culture, one that encourages and fosters self-expression, is a key ingredient in innovation, creativity, entrepreneurship, and ultimately growth. Open places encourage and foster new ideas. They attract new and different kinds of people.

I fully agree that places hoping to attract productive people need to support the sort of cultures those people prefer. And yes, in our world today many productive and well-educated people like local cultures emphasizing aspects of bohemian self-expression and ethnic diversity. What I dispute is the idea that the cultural preferences of productive people cause those people to be innovative. I claim instead that those same people would contribute about as much innovation to the economy even if they were forced to live in areas that less supported bohemian self-expression. For the most part, innovation is just not caused by people trying to express themselves.

“Isn’t the main problem our education system, which squelches people’s creativity?” I’m no education expert, but I have to agree. Sometimes I think our great research universities will save us, but then I recall what the always-prescient Peter Drucker liked to say. He says, more or less, that the university won’t “survive” the transition to knowledge-based capitalism.

Yes, the education system squelches creativity; that is what it was designed to do and that is one of the main reasons educated people are valued. Relative to the needs of most jobs, people are inclined to be more creative than would be productive. School is mostly about sorting out who is smarter and more diligent, and learning the habit of showing up day after day to somewhat boring jobs with ambiguous instructions.

Robin, Thanks for your post. Seems like there’s much we agree on, and issues are coming more clearly into focus.

I agree completely that our education system was designed to sort people according to intelligence and diligence. And I agree about people wanting to be more creative. What I think is that people able to be more creative will likely be even more productive. Teresa Amabile, a psychologist now at Harvard Business School, has studied the economic and workplace implications of creativity for several decades. Her book on creativity nails how creative people are intrinsically motivated. She likes to say it’s counterproductive to use extrinsic rewards to motivate creative people who are mainly motivated by challenge, peer respect, etc.—motivated from within. She has a new study out which is quite remarkable. She finds creativity everywhere, apparent and under-used at many workplaces. A big problem for creativity is too much rules-based management, too much micro-managing, and too much stress.

I wrote a paper on this for the Harvard Business Review with Jim Goodnight, a computer scientist and founder of the SAS Institute, the largest and most sucessful privately held software company in the world. Jim is no softie. When I asked him what SAS does with slackers he said simply, “we throw them out.” Jim says the key to SAS’s success lies in challenging creative people—and not just his software developers. SAS outsources very little, even its grounds crew is composed of full-time employees. For Goodnight the key is to find out what really motivates and challenges people (in Amabile’s words their “intrinsic motivations”) and let them go to it.

Toyota has shown the world how giving workers less ambiguous rules, better measurement tools, and much greater ability to use their own intelligence and creativity can spur tremendous improvements in productivity.

I recently went to get a spa treatment in DC. I find these situations awkward, so I asked the young woman there how she got to DC. She said she came here for college. Interesting, I thought. I asked where did she go. University of Maryland. Hmmm. A very good university. I asked how did college figure in her career choice. I was not prepared for her answer. She studied economics, she said. And, after being actively recruited, she took at job with the Bureau of Labor Statistics (BLS). The BLS is the main source of the occupational data I use in my own research. She went on to say that she worked on the spreadsheets that are the backbone of the Bureau’s occupational analysis. It was a great-paying job, with a steady career path, job security, and great benefits. It was easy for her. Problem was, she said, she was bored to tears. Tearing her hair out bored. She wanted to do something more “creative”—her words not mine—more exciting, more fun, and challenging. So she decided to go back to school for a cosmetology license and take up work as a free agent in a spa.

My point here is that we have to square the circle between Robin’s point and my own. Perhaps she was more productive as an economist. Lord knows, she was more productive for what I do. But the organization could not hold on to her.

I think it’s important here to make a distinction between the kind of work we do and the context in which we work. To my mind, it’s not the work that was boring per se; it was her workplace that was a big part of the problem. Writing is among the most difficult things for most humans, including me, to do. But lots of folks enjoy being writers. For me, part of it is the work itself, but part of it is that I get to challenge myself, organize my own work, and do it on my time.

If we really want to increase productivity, we have to increase the creative content of work, make the context of the workplace better, and make better use of intrinsic reward and motivation. This is a huge step beyond the industrial model of work and education. We’re just at the tip of the iceberg here.

We are so very early in the Creative Economy. The real returns will come to those companies who learn better how to mobilize creativity. And so too with regions and nations that figure out ways to go beyond education as sorting and preparing people for boring jobs.

Robin says it’s not the cultural preferences of creative people that cause them to be innovative. Again, I could not agree more. My argument is not about individual cultural preferences, but about the characteristics of places—an important difference. He claims that “those same people would contribute about as much innovation to the economy even if they were forced to live in areas that less supported bohemian expression and ethnic diversity.” I’m struck by the use of the adjectives “bohemian” and “ethnic” in this sentence. My claim is about self-expression and diversity broadly, and I think it’s important to be clear about that.

My bigger issue is that my research shows this NOT to be the case. In fact there is a strong association between places that allow and enable self-expression and have higher levels of diversity and measures of innovation. I need not rehash the story of Silicon Valley and its long history of openness to diversity, self-expression, and just plain strange behavior. The same can be said of Austin and Seattle. What is so interesting about these places is that they channel self-expression and diversity into commercial innovation and successful entrepreneurial business formation. The same thing cannot be said for a place like Miami. Sure anything goes there and it’s wildly diverse. It does just fine on my third T, tolerance, but it lags terribly on the other two Ts, talent and technology. As I’ve said many times before for a place to succeed it needs to excel at all 3 Ts.

But the issue I want to call attention to is what happens to places that have significant technology and talent assets, but are not open to diversity and self-expression. Take Jobs and Wozniak in the early 70s at the start of Apple Computer. They were young. They dressed unconventionally. They wore their hair long. So did Gates and Allen by the way. Some of them were college dropouts. They would certainly qualify as non-conventional. I recall interviewing the venture capitalist Donald Valentine in the late 1980s for a project on the venture capital industry. My ideas had not progressed anywhere near the creative class and I was flabbergasted that such a straight-laced, professional-looking, older venture capitalist would put his money into the two clearly non-conventional Apple founders. He looked me dead in the eye, and after saying he couldn’t really remember if Wozniak had shoes on, replied simply: “I never bet on the shell; the only thing that matters is what’s inside the shell.”

A thought experiment I like to do is to ask people to imagine Jobs and Wozniak starting their search for funding in Cleveland or St. Louis or Pittsburgh. Imagine them pulling their car up to Mellon Bank, or some such, looking as they did, and asking for funding. The folks at the front desk would have called security.

A key to understanding innovation and economic advantage is to understand how and why places differ in their ability to mobilize creativity, attract creative people, and turn their energies into productive use. This is a huge and terribly neglected part of the story of innovative regions like Silicon Valley, and prosperous and competitive countries like the United States. And it’s something we need stop ignoring or rejecting out of hand and start subjecting to much more detailed empirical research.

I would like to take the conversation in different direction. Earlier this year, I, like Richard, had a chance to read Ed’s review of Tom Friedman’s book where he, like Richard, worried about the possibilities of extreme income inequality in a post-industrial, creative class world. From what I can tell, both Richard and Ed are assuming that this is the market outcome and we just have to live with it.

In reality, we are always willing to restrain the market when the situation suits us. Consider professional sports. A free market league would allow any team spend what it wanted with predictable results: with rare exceptions, only big city/big market teams would be competitive and the league would be a joke.

To avoid this result, the NBA, the NFL, and most recently the NHL have adopted salary caps and the leagues utilize some degree of revenue sharing (e.g. television revenue) as well.

My colleague Peter Temin and I suspect that something very much like this described the U.S. economy in the 1950s and 1960s. The translation of that period’s rapid productivity gains into broad-based income gains was not a pure market outcome. Rather, it was a market tempered by a number of institutions. While many of those institutions do not exist today, they will return if public sentiment is strong enough.

If the U.S. were the size of Monaco, we would, of course, have to live with the market and the fact that the biggest creators would leave town. But the size of our markets gives us a certain ability to extract rents and my guess is that rent extraction will become one brake against unbridled inequality.

Frank,

Touché! I agree 100 percent. What I meant to say is that, left to its own devices, the Creative Economy WILL create this outcome. Right now we ARE living with this highly unequal, very spiky outcome. But I agree with you. It does not, and should not, have to be this way.

Institutions matter. Your work with Temin is incredibly important. Somehow, with our collective belief in the power of the market—spurred by the flat-world mythology—we have forgotten that. I recall a seminar at MIT some years ago when the late, great Ray Vernon cautioned us all about the naive faith that globalization will essentially lift all boats. Vernon said, more or less, that he had lived through several eras of globalization, and that every time this naive faith arose—that the market could do it on its own—something very troubling, politically and economically, was around the corner.

I agree entirely about the so-called golden age. Its success at lifting incomes and lifting productivity came from a whole series of institutional innovations at the national and global scales. The genius of FDR, love him or hate him, is that he understood that industrial capitalism was a) generating inequality b) causing unemployment and other negative economic outcomes, c) shaping all sorts of political unrest, and d) holding down potential productivity improvement as well as holding back demand. The solution then lay in institutional innovations which, among other things, linked wage increases to productivity improvement, stimulated demand in various ways, and basically allowed more regular working people (like my factory-working father) to participate more fully and benefit to a greater extent from the Industrial Economy. These innovations turned formally low-wage, insecure, and dangerous industrial work into the so-called “good jobs” we bemoan losing today.

In a word, we succeeded through these institutional innovations in turning a highly unequal, sub-optimizing, and politically fragile Industrial Economy into a much more stable and cohesive Industrial Society, basically by including a broader segment of the working population in the social compact.

The problem we face today is quite analogous to the one faced by FDR and company in the 1930s. The problem is that virtually no one in a position of leadership (in either party) seems aware of it or willing to talk about it. I am amazed by how absolutely disconnected the Washington D.C. policy-making community is from this reality. It’s simply business-as-usual—if we ignore these things, they’ll simply go away.

We need to stop talking simply about competitiveness, growth, innovation, the knowledge economy, or even the creative economy. We need to start a conversation about building what I call a Creative Society—one that produces institutional innovations that can extend the productivity gains of the creative economy to a much broader group of people.

Honestly, I think it’s our only way forward. Right now, as Frank says, the creative/knowledge/innovation economy is generating greater disparity than in decades past. This disparity between creative haves and creative have nots is producing our terribly polarized politics—red and blue states, culture wars, and all the rest. One side will never best the others, so we will continue to swing back and forth between highly polarized political outcomes, failing to produce the institutional innovations we need to really generate sustainable economic results.

We need a whole series of institutional innovations that can square this circle by increasing the participation of manufacturing and service economy workers in the creative economy, ensuring that they realize material and, just as importantly, non-material benefits (i.e., better working conditions, more fulfilling and challenging work, and so on). We need to do so in a way that harnesses more of their creative energy and innovative capability (ala Toyota) for economic gain.

I don’t think we need massive federal programs to do this. My hunch is the FDR/New Deal system was workable in the old hierarchal Industrial Economy framework. My sense now is that the way forward is to work through much more decentralized local channels to develop these institutional innovations. In this sense, our American federalist system is a huge advantage, enabling all sorts of local experimentation. And, interestingly, as I mentioned toward the end of Flight, the local level is precisely where partisan differences are most muted and where consensus runs high. When I visit cities and towns across the United States and talk about their own economic development, it is nearly impossible for me to tell who is Republican and who is Democrat.

Now to the hard part. What kind of institutional innovations would be most effective in helping us move from a Creative Economy to a Creative Society? How can we do this in a way that best makes use of market incentives and network structures and moves away from a federal/top-down/vertical hierarchy? Here’s a question I asked recently of Sweden’s leaders, who are grappling with the question of how to recast their social welfare state in ways that could help spur self-expression and individual effort: What would a social support structure for a Creative Society look like? Or taking Frank’s question: What would a set of institutions need to look like in order to generate the maximum creative economic innovation and growth while also encouraging greater participation and cohesion?

What to consider? Where to start? How to begin fashioning a series of experiments that could lead us down this path in an economically productive and politically feasible way?

These, I think, are the REALLY important questions of our time. We need your ideas… Anyone out there want to weigh in?

I have been reading the interesting follow-up interchange between Richard and Robin, and wondering how I can add some value. Now that Frank has thrown the grenade of salary caps into an otherwise civil conversation, I have the opportunity.

But, first, kind regards to Frank, who made very extensive and very valuable comments on my review of The World is Flat. One of his best ones was related to the idea of salary caps. It made me do a considerable revision. Back on this later.

Here’s my view on the idea of salary caps: Frank didn’t really mean it. He was only kidding.

Frank’s analogy of the NBA and the US economy is not at all apt. The service that the NBA provides is an entertaining contest for which parity of the contestants is essential. It’s the competitive process that matters, not the outcome. But we consumers could care less how balanced the competition between Ford and General Motors and Toyota may be. We want the highest quality automobile for the lowest possible price. That goal is not served by salary caps.

So ignore that idea, and focus on what Frank really meant. In discussing the happy days of the 1960s, he hypothesizes that increase in wages at every level of skill occurred because: “…it was a [labor] market tempered by a number of institutions. While many of those institutions do not exist today, they will return if public sentiment is strong enough.”

Is he saying labor unions? I guess he was afraid if he said the U-word we would all get worked up, so he went with salary caps instead.

But maybe there is a better way of saying it. Some employment contracts are mediated by anonymous markets in which there are many workers bidding for the same work and many employees offering to hire workers to do the same tasks. Other employment contracts occur in the context of long-term relationships. It’s the difference between contestable versus negotiable. It’s dating versus married.

If you are reading this, I am pretty sure you have a secure negotiable job and you don’t lose sleep over the possibility that you will be replaced tomorrow because someone in the morning will offer to do your work for $1 less. You are special and your employer knows it. Your employer is special and you know it. You are both secure in that mutual knowledge.

Though we call the frictionless supply and demand model “perfectly competitive” it isn’t perfect at all. It’s highly insecure. It’s so insecure that neither side of the contract has an incentive to invest in relationship-specific assets. No children without marriages.

What we need more of in this country are relationship-based negotiable jobs. Send the contestable market jobs to China and India. We need to find ways to encourage marriages between workers and employees who are only dating (i.e. temporary work). And we need to help workers and employers maintain the marriages that are already formed. Training and education help. Getting health care and other benefits off the back of the labor contract is a good idea too. Who would want to marry that fellow if you had to pay for his health care and his family’s health care, and take care of his retirement too?

Here is what Frank meant to say: Frictions are our friends.

Homework: Are the creative jobs that Richard wants us all to have secure or insecure?

Proposal: Every time that Richard writes the word “creative” he has to buy a round of drinks.

One thing I have learned from this exchange: I have to write more clearly so I won’t be misunderstood even by people as smart as Ed. To help focus, I will write this post as Q’s and A’s. Choose anyone you want to be the questioner.

Q: Frank, are you really proposing salary caps as Ed Leamer says?

A: No.

Q: Then why did you bring up the salary caps in professional sports leagues like the NFL.

A: The NFL recognizes that people will lose interest in a pure free market sports league in which a few big market, rich teams do all the winning (my own New York Knicks would be the exception). In the same way, people will lose interest in a pure free market economy where they themselves cannot afford health insurance while the top 1 percent of tax returns claim 16 percent of all income.

Q: But doesn’t that get you back to salary caps?

A: Not at all. A progressive income tax system including an inheritance tax will do the job. The taxes have to raise enough revenue to pay for closing the heath insurance gap and to ensure decent funding for education—i.e. human capital formation.

Q: Ed says you are avoiding the union issue in describing the 1950s. Do you believe unions had and still have a role in solving the inequality problem?

A: Of course, and I should have been more explicit in my previous post. Unions, or to borrow from the Washington Post’s Steve Pearlstein, the threat of a union winning an election would help in terms of the distribution of earnings.

Think about today’s labor market. The rise of computerized work and globalization are limiting the individual bargaining power of most U.S. workers. Without some institutional counterforce, there is little chance that the gains from growth will be reasonably distributed. Do unions’ self-serving work rules retard economic progress? Absolutely. Do they retard progress more than we aging full professors who have tenured jobs with no mandatory retirement? That is a close call.

Q: Are Ed’s “Sticky Jobs” a solution here?

A: They may be a solution for the 3M Corporation but they are unlikely to be a solution for the average worker. The problem with sticky jobs is that there will never be enough of them—the labor market evolves too quickly.

In doing our work on computers, Dick Murnane and I developed a spectrum of tasks that showed how difficult it would be to program a task for a computer or to send it offshore. At the simple end are tasks that can be described in deductive rules—handing out airplane boarding passes. These tasks can be easily programmed or explained to someone 9000 miles away. At the complex end are tasks that require extensive tacit knowledge—writing a convincing advertising campaign or inserting a stent in an damaged artery. Ed’s sticky jobs live in this complicated end of the spectrum. These jobs cannot be programmed because we don’t know the rules. And these jobs can’t be sent offshore because we can’t be sure the offshore producer knows what they are doing. So the jobs end of staying here—i.e. they are sticky.

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The problem is that advancing computerization and increasingly sophisticated trading partners continue to transform sticky jobs into free range jobs. Fifteen years ago, speech recognition software could barely recognize a limited vocabulary. Now such software does fine on phrases and is making advances on natural conversation. The same timeline describes the kind of computer work we can send to Bangalore. So sticky jobs are a part of a solution but only a small part.

Q: So what is your bottom line?

A: In this new age, the need for Sticky Jobs and better education are real enough. But we won’t keep inequality within reasonable bounds without institutions that moderate market outcomes.

As we consider the shape of these institutions, we will hear the standard arguments that any attempt to modify the market will reduce wreck the economy by reducing economic efficiency. This observation is another example of the drunk only looking for his watch under the streetlamp. As Steven Pearlstein notes, we do a great job measuring the inefficiency that comes from the minimum wage or higher taxes. But we do a lousy job measuring the inefficiency (and loss of creativity) that comes from economic insecurity, stagnant wages, and shrinking benefits. There are many things we can do without turning our economy into the new France. It is about time we started trying.

Richard, I have tried to focus on more specific phrases like “bohemian self-expression” and “ethnic diversity” because they have more specific connotations. Unmodified, words like “expression,” “diversity,” “open,” and “creative” have so many associations that it is not clear that they refer to anything useful. You mention a person bored in her job, wanting more “creativity,” which you paraphrased to mean “more exciting, more fun and challenging,” and you infer she should live in an area containing street mimes, gay bars, and musicians, because they are also called “creative,” and I guess you consider them fun and exciting.

Correct me if I’m wrong, Ed, but aversion to such ambiguity induced sloppiness is probably what Ed had in mind when he proposed “Every time that Richard writes the word ‘creative’ he has to buy a round of drinks.”

The places you call “diverse” are not diverse along all dimensions (consider political ideology), all people “express” themselves, even if they choose to look and act like some other people, and the fact that hackers prefer long hair, casual clothes, and late hours does not make them more open-minded—they have a different culture, but a culture with limits and expectations that are as strong and clear as most other cultures’.

I agree that organizations can do more to encourage innovation, and that Teresa Amabile has some useful things to say about that. What I object to is your lumping all that under the broad label “creative,” together with every other association of that word, to conclude that one side in today’s culture wars is the main source of economic growth.

Frank Levy writes:

[W]e do a lousy job measuring the inefficiency (and loss of creativity) that comes from economic insecurity, stagnant wages, and shrinking benefits. There are many things we can do without turning our economy into the new France. It is about time we started trying.

If workers had a strong enough demand for more benefits relative to wages, or for more job security relative to wages, I think employers would be willing and able to provide those job features. They might even be willing to provide private long-term insurance against variance in individual compensation.

Yes, further reductions in the variance of compensation would have to come from government, and while those policies could have real productivity costs, they could be worth their costs if people were averse enough to compensation inequality. However, the key question is how strongly people want to reduce compensation inequality.

I see no fundamental reason that people should or should not want to reduce inequality or insecurity to any particular degree. These are just questions of preferences, pure and simple. While one could complain, as does Florida, that “the problem is that virtually no one in a position of leadership (in either party) seems aware of it or willing to talk about it,” a simpler theory is that this is not a “problem” the public wants to solve.

It is interesting to note that there are many kinds of inequality that people could in principle be averse to, including unequal achievement in sports or music, unequal number or quality of friends, unequal number or quality of sexual partners, unequal lifespans, and so on. Government policy could be used to reduce any of these types of inequality, if the public so desired. Yet academic discussions focus almost entirely on equality of compensation, and sometimes on access to education and health care.

Robin’s fun. He likes to modify words for me and tell me what I think. Kinda cool, actually.

So when I say “self-expression” he says “bohemian self-expression.” When I say “diversity” he says “ethnic diversity.” He says my concepts are “overloaded,” but in reality it’s his adjectives and modifiers that are really loaded.

He says that I infer that the woman I mentioned who changed jobs and careers from being a BLS economist to working at the Four Seasons Spa would also “like living in an area containing street mimes, bars and musicians, because they are also called ‘creative’.” Huh? Whaaatt? I never said or inferred anything of the sort. From what I can tell she lives in Arlington near Pentagon City. So much for her bohemian side. If I’ve not been clear on this, I should be: creative people (I’m buying the drinks now, Ed) come in all shapes, sizes, world-views and political persuasions. That’s a core argument of my theory, by the way.

Also, by the way, “creativity,” “diversity,” and “self-expression” are established concepts with a long record in the social sciences. I go to great lengths in my writings to further define them with great precision. I use the concept “creativity” (and yes, Ed, another round on me) because I believe it captures a very important dimension of economic growth not captured by concepts like technology, knowledge, information… but I’ve already covered that.

I’d much rather do more empirical work and let the facts speak for themselves. And in this regard concepts like “diversity” and “self-expression” actually appear to have a lot of utility, empirically speaking. I’m not the only one who has found this to be the case. As I mentioned before, have a look at the work of Marcus Noland and Jamie Peck at the Institute of International Economics. They found that “open attitudes toward homosexuality” capture a good deal of what is not explained by more conventional economic factors in accounting for international financial performance. Ronald Inglehart has found that political cultures that favor self-expression also register higher rates of growth. Both found these things independently, without reading my or each others’ work. I guess we could all have the same ideological or cultural agenda, but more likely there’s really something going on here that this work is turning up.

It seems pretty clear to me that America’s relative openness to diversity and self-expression of all sorts, while often noted as a cultural characteristic, also plays an important and neglected role in our innovative edge and economic performance. If it holds for the nation as a whole, it would only make sense that it would hold for its regions too.

One last thing: I have no stake in the cultural wars. None, Nada. How many times, in how many ways, can I say this? I already said that I’m a registered political independent, that my team runs the gamut from right to left and everything in between, and that what we all share is our interest in trying to better understand the factors that drive innovation and economic growth. We collect data, do empirical analysis, share our findings AND our data with anyone who is interested, publish our findings, and go back and do it again. That’s it.

Since I’ve been clear on this already, the only thing I can think from Robin’s last couple of posts is that it’s he who’s hung up on the cultural wars.

I agree with Robin that Americans have little demand for an abstract economic equality. But that is not the issue. The issue begins with people measuring their economic circumstances against where they reasonably expect to be. For example, if you look at the May 2006 economic polls of the American Research Group, 52 percent of respondents say their household economic situation is good, very good, or excellent, while 46 percent say their household economic situation is bad, very bad or terrible. Looking to the future, 9 percent expect their household economic situation will be better a year from now while 54 percent expect their household economic situation will be worse. I appreciate the effect of gas prices, etc., but I suspect these are not terrific numbers for the fifth year of a recovery in which labor productivity has risen by more than 20 percent in total.

In these circumstances, we are likely to see what Robin might call a derived demand—a political sentiment that the costs of globalization and technology be shared more equally.

Richard writes:

When I say “self-expression” he says “bohemian self-expression.” … He says my concepts are “overloaded,” but in reality it’s his adjectives and modifiers that are really loaded. … I have no stake in the cultural wars. None, Nada. How many times, in how many ways, can I say this. I already said that I’m a registered political independent and that my team runs the gamut from right to left and everything in between; … the only thing I can think from Robin’s last couple of posts is that it’s he who’s hung up on the cultural wars.

In the preface to his main book he wrote:

Social conservatives have gone apoplectic over my finding that places with high concentrations of gays and bohemians tend to have higher rates of innovation and economic growth. … often when I talk about the correlations I’m finding between cultural factors and economic health, people start shouting moralisms at me.

Richard, in that book you use the word “gay” on 54 pages and “bohemian” on 73 pages. When I and other readers try to figure out what you mean by notoriously vague words such as “creativity,” “diversity,” or “self-expression,” we naturally look to such frequently mentioned words to form more specific associations. And surely you are aware that “gay” and “bohemian” hardly have neutral associations in politics or the culture wars, especially when your ideal places turn out to be San Francisco and New York. Surely you did not expect the far left and the far right to be equally likely to object to your conclusions. Like it or not, you are in the culture wars.

Ed and Frank, I invite you to weigh in. How comfortable are you with Richard’s association of bohemian/gay style “creativity” with typical business innovation and “creative” jobs that are “more exciting, more fun and challenging”? How useful is it to abstract away the differences between these kinds of “creativity” in the way that Richard attempts?

This is good—really good. I like Robin’s persistence. He makes me think. And that’s always good. Let me take some time to reply.

First off, I think the passage Robin quotes from my book speaks for itself. There is a correlation between these two things, the gay index and the bohemian index and (1) innovation (measured by patents) as well as (2) high-tech industry concentration (measured by the Milken Index.) The point of that passage is that these are empirical results, and that people went berserk over them in ways that just blow me away. I’m still amazed at the overreaction. I have been a researcher for nearly three decades. I find it frankly amazing that of all the many empirical findings in my research over this time period, it is these two results that have generated a massive debate, or dare I say overreaction. As I said, in independent research both Marcus Noland and Ronald Inglehart have found similar correlations.

As I said in the original article, I did not start out with any sort of agenda to identify these variables or the resulting empirical findings. I have a long history as a student of innovation and economic growth and was plugging and chugging along as usual until I started an interview-based project which began to suggest that factors like “amenities” and lifestyle mattered to the location choices of highly skilled or highly educated people. Then I read Ed Glaeser’s paper on the consumer city and I thought there’s something interesting here.

The problem with a lot of the literature on amenities, location, and economic growth (not Glaeser’s work, by the way) is that the measures of amenities are frankly problematic, unsystematic, and just plain poor. So, my graduate students and I said, “What if we can come up with some better measures?” We surmised that one of these would be a measure of cultural producers—artists, musicians, designers, writers, and what not. This measure is systematic and also has the advantage of reflecting the “revealed locational preferences” of cultural producers. We called it the “Bohemian index,” figuring that these kinds of professions could be somewhat wittily identified as “bohemians.” We were amazed by the statistical associations and wrote them up for an economic geography journal.

The origin of the gay index is a related story I have told before, but which is worth telling again. As I was pursuing the research on amenities and location, my Dean at Carnegie Mellon, Mark Kamlet, mentioned to me that there was a graduate student in the program, Gary Gates, who was looking at amenities and location decisions in his work with Lowell Taylor, Seth Sanders, and others in the context of the demography and location of the male gay community. I said to him, “Huh? What could this have to do with my work on high-tech innovation and growth?” But as a curious colleague I thought, “OK, I’ll meet with Gates.” Gates, who had been doing this research and was already sensitized to its “hot-button” nature, asked me to name my top 5 high-tech centers. I rattled off a list like: San Francisco, Boston, Austin, San Diego, and Seattle. He said, “Rich, you hit the jackpot. You just named 5 of the top 10 leading places for gay men.” The ice was broken and we had a good laugh. After a time we decided to try to see what was there, and ultimately we wrote up a research paper on our findings for the Brookings Institution.

The point is: I did not set out to go after culture issues or weigh in on the culture wars. These two factors—the locational concentration of artistic and cultural producers and of gay men—turned out to have a much more powerful statistical association to concentrations of high-tech innovation and high-tech firms than I ever would have expected.

So I’ve spent the better part of a decade now trying to figure out why. The best I can tell is not that innovative people are bohemians or gay, but rather that locations that are open to diverse groups of people, open to diverse sets of ideas, and that enable self-expression tend to have underlying eco-systems that encourage and attract innovative people generally, including those who would like to apply their talents to scientific, technological, and economic innovation. I really believe there is something to this. I plan to keep on exploring it. And, as I said before, others, like Marc Noland and Ron Inglehart, are generating complementary findings.

There is a bigger debate to be had here, and it is a robust one, with all sorts of people, like Ed Glaeser of Harvard and Terry Clark of the University of Chicago, weighing in on the direction of causality, and also on the scale and unit of analysis.

Terry says the Bohemian index results mainly hold, but that the gay index results are less robust at the county level. We use the Consolidated Metropolitan Area level in our analysis. We agree with Terry: the gay index result is much stronger at the Consolidated Metropolitan Area level—the level we prefer—than at the county level. The reason is that commuting distances are longer these days. Gay people who are technologically inclined, but want to live near significant concentrations of other gay people, can commute to Silicon Valley from San Francisco, or from DuPont Circle to Northern Virginia. Similarly, family people who work in urban centers also can commute from Silicon Valley suburbs to San Francisco, or from Northern Virginia to DC.

Glaeser’s critique is different and quite interesting. In fact, we sent him the data he used in his analysis. Ed ran a simple linear regression with a series of variables: human capital (using educational attainment), the Bohemian index, gay index, and so on. He found that human capital was the most powerful explanatory factor by far.

There are two points I’d like to make here. First, I offer my creative class measure as an alternative to traditional education-based measures of human capital. I say that human capital matters, following Lucas, Glaeser, and others, but I believe that occupation-based measures are useful and perhaps more effective. People like Michael Dell and Bill Gates fail to meet the criteria of the educational-attainment measure, which is bachelor’s degree and above. Interestingly, a study by economists at Utrecht University, which tested the standard educational measure against my occupational measure, found that the occupational measure did substantially better in accounting for economic growth of Dutch regions. I would encourage researchers out there to test the two of these in side-by-side comparisons. I think the occupational measure also has a lot to offer for regional development analyses because it can help identify real regional strengths and weaknesses and can be used to help orient regional growth strategies.

The second issue is somewhat more complicated or arcane, but may be even more important. It has always been self-evident to me that human capital (however measured) has the main effect on innovation and economic growth. But this begs the question, which I mentioned in my earlier posts, of why some locations have more human capital than others. To me, that’s a really big question—perhaps one of the biggest unanswered questions in the literature on growth. Human capital is not a factor that some places are magically endowed with. It’s different from land, raw materials, or natural resources. People are mobile and get to choose the places they want to be. Tiebout pointed this out a long, long time ago. Highly skilled and highly educated people are the most mobile of all. For example, think of the location decisions of university scientists. So, the real question is: Why do some places end up with higher concentrations of human capital than others?

This is the real question my work poses and tries to answer. It seems to me that a very simple and plausible answer is a place’s openness to diversity. I refer to it technically in my work as a place’s having “low barriers to entry” for human capital. That’s the real force I see at work—not coffee shops, or bohemian lifestyles, or gay neighborhoods. But I say as much in my work.

Methodologically, this is very hard to get at. In a paper I wrote for a mainline geography journal, we used path analysis to get at this. And the results of that analysis are pretty clear. Measures like the gay index and the bohemian index, while having a weak direct effect on innovation and growth, have a powerful indirect effect on both, working through the intermediate variable of human capital.

Another way to get at this would be to use a simultaneous system of equations to tease out, first, the effects of openness and other factors on the location of human capital and then, second, the effects of human capital on innovation and growth. This is a line of research I have been working on, and would like to encourage others to probe as well.

The point is that saying cultural factors matter to innovation and economic growth, and trying to show that they do matter in a fact-based, empirical manner, is quite different from trying to stoke the fires of the culture wars. My honest best sense of the culture wars is that in an environment so hotly ideologically and politically charged we need more, not less, objective research on these matters.

Robin, thank you for honestly engaging this debate. Since we’re both at GMU, maybe we can get some of our graduate students to work on the model and the data.

What do others think?

Just to be clear, I don’t claim that Richard intended at any point to enter the culture wars, or to advocate for a political viewpoint. And as a theorist, I am not taking a position on the quality or conclusions of his empirical analysis. His argument combines empirical claims of certain observed regularities with theoretical claims of the plausibility of certain connections and causal relationships. I am addressing myself primarily to the theoretical claims.

Richard writes:

Why do some places end up with higher concentrations of human capital than others? This is the real question my work poses and tries to answer. It seems to me that a very simple and plausible answer is a place’s openness to diversity. I refer to it technically in my work as a place’s having “low barriers to entry” for human capital.

There are many, many ways in which individuals and groups can vary, and thus there are many kinds of diversity. There are also many ways to react to each kind of variation; there is not just “open” or “closed.” So I am skeptical that geographic regions have a general property of “openness to diversity.” Rather, certain regions that you have in mind are “open” in certain kinds of ways to certain kinds of variations. Beyond that, in most relevant business contexts I do not see a plausible causal connection between such “openness” and local innovation.

Yes, for a region to do well the local culture must seem inviting and friendly to the high quality people in relevant industries. So Silicon Valley would not be as productive if the area were not as friendly to the culture of hackers, including supporting their typical work hours, habits of dress, and so on. But that is very different from saying that the region *caused* hackers to be innovative.

Robin, Thanks again for your thoughtful comments. The elaborations and clarifications in this dialogue are mighty useful. In that vein, one last clarification: My theory does not say regions “cause” hackers or anyone else to be innovative. It says instead that regions that have these “low barriers to entry” attract more potentially innovative people. As more of such people are attracted to these places, they form new combinations, and some of their work then turns into commercially useful and successful innovation, though much does not. Simply put, if innovative and entrepreneurial people (Ed, I’m trying to avoid another round) are mobile and have many locational choices (in other words, if talent is a flow rather than a stock), what matters is where higher proportions of talented people choose to locate. It is not enough, I think, to say they simply choose to be near one another, though Jacobs-Lucas’ human capital externalities certainly power the process. The flip side of it to understand why places that were once innovative and productive decline. I posit that it is because, at some point, they start to squelch these people and drive them away. I read a post recently commenting on our dialogue here with an apt header in this regard—“centers of repulsion.” Understanding the uneven flow and distribution of talent, I think, and the role of place or location in this, is perhaps the key element in generating more robust theories of innovation and economic growth.

Rather than in the abstract, try tackling the following problem.

I grew up in the small town of Vestal near Binghamton, New York. The major industry of the area in 1900 was cigars, which left when tobacco fashion shifted to cigarettes and cigarette production was mechanized. No matter, by 1950 the Endicott Johnson shoe company had replaced cigars. But shoes, which had left artisan shops in Boston to come to upstate New York, continued their footloose behavior and left the US altogether in the 1960s. Not to worry. By 1980 IBM was the major employer of the area. THINK sat on every desk and every wall at IBM, and what IBM produced was “thoughts,” which were packaged in mainframe computers built by high school graduates at high wages.

Now IBM is gone and there is not much of anything in the way of jobs except hospitals and Wal-Mart. Young people are fleeing for better lives elsewhere. It isn’t just Binghamton. On Tuesday, June 13, Sam Roberts wrote about this in the New York Times in an article titled “Flight of Young Adults Is Causing Alarm Upstate”:

From 1990 to 2004, the number of 25-to-34-year-old residents in the 52 counties north of Rockland and Putnam declined by more than 25 percent. In 13 counties that include cities like Buffalo, Syracuse and Binghamton, the population of young adults fell by more than 30 percent. In Tioga County, part of Appalachia in New York’s Southern Tier, 42 percent fewer young adults were counted in 2004 than in 1990.

We have a real problem here, don’t we? What is causing this radical change in the physical geography of wealth formation? What should Binghamton do? Is there any way to save upstate New York? What say ye, o wise men of Cato Unbound?

First, Mr. Thomas Friedman: What did you mean by the item quoted in Richard’s original essay: “you no longer have to emigrate in order to innovate”? Should we plaster the Binghamton area with posters that say that, and keep all the bright kids in the area?

Frank: Is this the failure of education? Did my high school in Vestal take the wrong path after I graduated? Do State officials need to swoop down on these schools to prepare kids to do the problem-solving tasks of the 21st Century? Or is it the institutions? Do we need some new laws that make membership in a labor union mandatory?

Richard: How does the word “creative” help find a solution? This region contributed more than its share to the innovations of the 20th Century—Corning glass, Xerox, Ansco, and thousands of small manufacturing firms. IBM was one of the most innovative companies that has ever existed. This was accomplished with a minimum of diversity. Actually, IBM was the opposite of diversity, with straight white men wearing starched white shirts and creased dark trousers. Do you think now the region could be helped by some remedial general training in tolerance as a way of attracting creative people?

Robin: What do you say about this? You have a sharp critical scalpel, but what solutions do you propose for a real problem? It sounds like your advice is: Don’t worry. Be happy.

Last, to Ed: For all the wisdom your words try to convey, you don’t have a clue, do you? It’s like hurricanes. You can study and understand, but there isn’t much you can do about it, except offer some disaster relief after the storm has hit.

Ed nails it. We need to be more concrete. I like his example a lot. I should: my team and I have actually worked a lot in parts of this region, especially Syracuse, Ithaca, and Corning.

I think we can do more than disaster relief. This is why I developed my theory and approach. I think it provides some real levers that communities can push on. In this region, I have to say, some remedial training on tolerance would be useful, but only to some extent. There are other even more pressing things that need to be, and are starting to be, done.

I could go on and on about this, but I propose another approach. I am going to try to get the leadership of the region to comment on how and where our approach and work helped them and, conversely, where it did not.

I have long been a strong believer that an important way to advance theory and understanding is to get in the trenches, not just to to see how things work, but to see how tangible improvements can be made.

Thanks Ed!

Ed asks if there is any way to save upstate New York. But first I have to ask: is it worth saving? Our allegiance should fundamentally be to people, not places. Economic growth includes changes in the distribution of jobs, industries, and regions, and part of the real costs of growth are the costs for people to change jobs, industries, and regions. The market seems to be saying that people are worth more if they move out of upstate New York, and I have no particular reason to question that judgement. (I similarly think that letting poor foreigners move here can work better than figuring out how to improve their local economies.)

My answer is trite but solid: identify and correct for local market failures. That will give the area the best chance to attract activity, though that outcome would still be far from guaranteed. The most obvious uncorrected market failure I can see is inadequate density—we should weaken regulations that discourage higher density, such as minimum lot sizes, excess zoning regulations, and so on.

Richard recommends tolerance training, but I cannot see a substantial market failure there.

Great post, Robin. You and I agree on two things, both backed by solid empirical findings.

Immigration: The most powerful driver of economic development in small and mid-sized regions, as Rise of the Creative Class points out, is immigration. The other factors Robin and I have debated, the gay index and bohemian index, are important to very large regions. Schenectady actually went after immigrants, specifically Guyanese immigrants in Queens, and the strategy seems to have worked fairly well.

Density: it also really matters. Jane Jacobs said so, long ago. And my Carnegie Mellon doctoral student Brian Knudsen found very strong density effects across U.S. regions.

I mention tolerance training as an aside, only because older regions tend to chase away some segment of their talent, especially gay people, and in many case young people because they are not open to them. Our recent Gallup survey of 22 urban centers found something interesting, here. When we asked these 3000 residents if their cities were “good places” for a whole slew of groups, guess what group came in last place? Not gays, not racial minorities, not immigrants, but “young recent college graduates looking for work.” I’m not saying becoming more open and tolerant would save the day, but it would create a social climate more open to immigrants and young people, as well as other groups.

In the last two days, everyone has put up interesting posts and Will, the moderator, has sneaked in a few questions of his own. A lot to discuss but I will keep my responses short.

On Ed’s question—what’s to become of Vestal—I am somewhere between Robin and Richard. Ed grew up in Vestal just like I was born in Yonkers—these places (or their memories) have a role in our lives. But a colder eye would say that some of the economic success of these places owed a lot to transient good luck. Some of us here in the MIT city planning department believe that if the Pilgrims had landed in San Diego instead of Plymouth, most of Massachusetts would be a state park. What sane people would have dragged themselves eastward over the Rockies for the pleasure of Massachusetts’ long winters and barren farmland? Instead, the Pilgrims landed in Massachusetts and, given the poor transportation of the time, many locations in western Massachusetts and upstate New York looked pretty attractive. Over time, transportation improved and air conditioning meant the South and West could provide tolerable summers as well as the warm winters. Not so good for the Vestals and the Yonkers of the world.

So I agree with Robin that people do what they do and that people, rather than place, is the dominant issue. But in my experience, if place is to have any chance at a comeback, the situation, as Richard might suggest, starts with the quality of schools. An economist in Boston, Alan Clayton Matthews, knows a great deal about the Massachusetts economy. Some years ago, we were talking about the story that out-of-sight housing prices were strangling economic growth—i.e. there was a housing shortage. Alan said that worrying about the housing stock per se was the wrong way to think about things. Potential residents—the Creative Class?—weren’t looking for just housing. They were looking for housing in communities with good schools. There was plenty of good quality housing stock in communities that were off the table because the school systems were bad. Somehow improve the school system in those communities and the housing shortage would be solved. I am not sure what kinds of industry can be attracted to Vestal in the early 21st century but even if Vestal has good cheap housing (which I assume it does), good schools have to be part of any redevelopment plan. Richard says he is going to get some comments from local officials on the way they are applying his ideas—I would very much like to read those.

Finally, Will, the stealth moderator, asked us to define one government policy that would affect the future of U.S. work. I would nominate some variant of Georgia’s Hope Scholarships and the similar programs that have developed in Arkansas and other states—programs that drastically lower the cost of higher education provided a student performs at or above a specified level. My reasoning comes from three things we know. First, the future of the country depends on human capital formation. Second, the extensive discussion of offshoring, including offshoring higher-end jobs, increases the perceived risk associated with many higher education investments. Third, today’s students increasingly come from minority families where there is no tradition of going to college—a source of information that might reduce the perceived risk. It is not that everyone needs a four year degree but we need to accelerate human capital formation and the cost of post-secondary education is one lever that we have.

Thanks to all of you guys. I have enjoyed this.