Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate and visiting fellow at Florida International University.
The declinists are wrong, America is emerging from the crisis stronger than before.
Weak U.S. Hiring Adds to Global Gloom" blares the New York Times today, noting that America added just 69,000 jobs in May and its unemployment rate ticked up to 8.2 percent.
But might such short-term bad news mask America's underlying capacity to remake and rebuild its economy?
That's the argument made by Daniel Gross in his terrific new book Better, Stronger, Faster: The Myth of American Decline ... and the Rise of a New Economy. The book focuses on the underlying adaptability, flexibility and resiliency of the American economy, arguing that rather than weakening America's economic hand, the crisis has strengthened it.
Gross takes on the pessimists who argue that America's best days are behind it. Certainly, Gross notes, the country has its share of problems. But the United States has showed a historical ability to remake itself. Its adaptability, flexibility, diversity and agility have again enabled it to respond effectively to crisis.
I took a few minutes to chat with Gross over email about his views on the role of cities in America's economic rebound.
You have a long discussion about the shift in America to a rentership society and more “efficient consumers,” tell us about both.
The evaporation of easy credit and the stagnation of the labor market have been immensely damaging to the economy, and to the American psyche. They’re among the leading contributors to the sense of decline. Without easy access to credit how can Americans buy the things they need to live decently: houses, cars, consumer goods generally? And with income flat or declining, how can they hope to increase living standards?
The answers lie in the rentership society and in the efficient consumer.
Owning a house makes sense and is a positive good for millions of Americans. But it’s clearly not for everybody. For mobile 20-somethings, mid-career people looking to pay down debt, or for people who need the flexibility to move where jobs are more plentiful (which is to say lots of people up and down the income scale) renting a house or apartment makes much more sense than taking out a huge mortgage and getting stuck. Owning a car costs the typical American several thousand dollars a year. But companies like Zipcar let people in urban areas get the full mobility associated with car ownership without having to pay for parking, lease costs, or insurance and maintenance. Chegg.com allows strapped college students to rent textbooks online for a few months – at less than half what it costs to buy the textbook. Rent-the-Runway allows people to rent fashion and accessories. All of these businesses have boomed in the recession. A great deal of the rise of rentership can be ascribed to economic necessity. But Americans are generally efficient in the long-term, and in an increasing number of instances (housing and mobility are generally the two biggest items in a household’s budget) it really makes sense for lots of people to rent than to own.
Speaking of efficient, just as companies have improved their balance sheets by focusing on productivity and efficiency, so can consumers. They just haven’t tried that hard. Cutting your overhead costs by two percent or five percent is the same as giving yourself a 2 percent or 5 percent raise. There are the old saws of personal finance – make your coffee at home instead of buying a frappucino at Starbuck’s.
Americans spend about $20 billion on bottled water per year, for crying out loud. Millions of Americans pay AOL for email unnecessarily. A huge amount of food that is purchased each year is thrown out. But I’m talking about something deeper, of inculcating a mindset. Households don’t employ MBAs who scour bills and look for efficiencies. Fortunately, businesses are starting to do the work for us. There’s been a quiet revolution in fuel efficiency, so that entry-level vehicles like the Chevrolet Cruze get excellent gas mileage. We’ve got new standards for light bulbs that will allow for easy reduction in energy use. Products like the Nest programmable thermostat will give people a new level of control over heating and cooling costs. And I think there are still huge potentials for gains. My ideal start-up company would be one that comes in, does an energy audit for free, swaps out light bulbs, programs your heating and cooling, and then gets paid a percentage of the savings going forward. These arrangements exist for businesses.
You aim your book at the "myth of American decline" and "declinists" on both the left and the right. Tell us about where the myth comes from; why, in your view, the declinists, get it so wrong.
To be clear, in my book I focus really on economic decline rather than geopolitical decline. There are right-wing economic thinkers who believe the country Is destined for Socialism or worse every time a Democrat gets in the White House. They’ve been saying this going back to FDR. And left-wing economic thinkers who believe that runaway corporate greed, the decline of labor, and Obama’s timidity in dealing with the banks and the collapse of economic demand have consigned the U.S. to a Forever Depression. You’ve got the China bulls (hello, Tom Friedman!), who are convinced all the economic energy in the world has moved to Asia and that an authoritarian regime is the key to the future of capitalism. You’ve got the Japan bears (hello, Prof. Krugman), who think the U.S. is about to have a lost decade due to timid monetary policy. There’s a hard core of British declinists (Niall Ferguson, et. al.) who can only look at the U.S. through the prism of the U.K.’s decline. And then there’s everybody else. We all have a tendency to forecast by extrapolating from existing trends.
They get it wrong because they misunderstand the past, the present, and the future. (Other than that, they’re right on point!) They get it wrong because it is very difficult to forecast inflection points. (How many folks out there predicted the market top of the fall of 2007 and the recession of 2008). And they get it wrong because they’re focusing only on the negatives of the past few years, and not focusing on the positives. They’re missing the really important cultural and structural differences between the U.S. of 2012 and Japan of 1992 and the U.K. of 1892. By focusing so much on the things we have done wrong – housing, finance – they’re overlooking the many things our economy does right. They’re missing the ways in which the U.S. economy, in particular its private sector, has restructured, discovered new internal resources, and engaged with the world. And they are missing some of the ways in which global growth is a major plus for the U.S.
It’s a big question, but briefly, what key factors are driving America’s economic turnaround, and how long do you think it will take for jobs to come back?
I divide them into internal and external strengths. The internal strengths include the ability to restructure and react – look at how Ford avoided bankruptcy, cut billions of dollars in costs, avoided a near-death experience in 2009 (it’s stock fell to $1.59) and regained market share, became profitable, started paying a dividend again, and regained its investment grade credit rating. All without any bailout. Thanks to restructuring and continuing work on efficiency, U.S. corporate profits and cash holdings are at record levels.
I focus a lot of my book on external strengths. Did you know that the U.S. is the world’s largest exporter? And that monthly exports are up 50 percent from their bottom in April 2009? Or that the U.S. leads the world in the amount of foreign direct investment? Or that record numbers of tourists and students came to the U.S. in 2011? To a very large degree, non-Americans are recapitalizing the U.S. by buying our condos, shopping in our stores, buying our companies, and building new factories from scratch. And all of this activity adds meaningfully to employment. In The Graduate, the one-word catch-phrase for economic success was “plastics.” Today, I’d argue that it’s “trade.” Sectors that are sensitive to trade – agriculture, energy, capital goods like airplanes and gas turbines, commodities, logistics, transportation, tourism – have bounced back more rapidly than purely domestic industries.
Rising wealth around the world means that more people have the capacity to consume what we produce. They’re doing so in increasing numbers in the U.S., but they’re also doing so at home, which is providing new markets for American brands (Starbuck’s, KFC, Mary Kay), for entertainment (The Avengers opened overseas first and did hundreds of millions of dollars in box office before it opened in the U.S.), and for all sorts of other stuff.
As for jobs, we are clawing back jobs slowly. The private sector has added about 4.3 million jobs since early 2010. The problem is that the public sector has cut one million positions in the past two years. We need sustained demand, sustained growth, and an absence of austerity to get closer to full employment.
In your penultimate chapter you discuss the power of “scale, scope and systems." How do cities, urban areas, and transportation infrastructure factor into America’s economic comeback?
Cities, urban areas, and infrastructure figure massively in America’s economic recovery. I write – and have written – a lot about the importance of commercial infrastructure. How we build it, and what others make of it. Things like the telegraph, the railroad, the interstate highway system, and the internet. In a very real sense, cities themselves are vital commercial infrastructure. I focus a lot in my book on how the U.S. economy engages with the world – exporting, attracting foreign direct investment, attracting tourists and foreign students to higher education. Cities are basically portals for exports and FDI – far beyond their industrial ports. Think about gateway cities like New York, Miami, San Francisco, Los Angeles, Seattle, even Houston, and the links they enjoy with Europe, Latin America, and Asia. It’s not surprising that the economies of these cities has held up better in recent years – they appeal to global customers. The Saks 5th Avenue store in midtown Manhattan gets something like 20 percent of its sales from foreign tourists. Miami’s high-end real estate market is being invigorated by Latin American buyers. Chinese companies are investing in banks and manufacturing firms in Los Angeles and San Francisco.
There’s more. Cities encourage efficient living and consumption. And even our broken cities, like Detroit, serve as important commercial infrastructure. When you’ve got transport, office buildings, neighborhoods, a structure—even if they’ve fallen into disrepair and have fallen deeply in value – it means that others can come in with a much lower cost basis and start to innovate. Companies won’t move into a foreclosed gated community outside Phoenix or in an exurb of Las Vegas. They will move into a beautiful old building in downtown Detroit that offers cheap rent. In the same way that U.S. managers have shown a great ability to restructure industrial companies, we have the ability to restructure industrial cities.
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