Newgeography.com - Economic, demographic, and political commentary about places

Police Pensions and Voodoo Actuarials

Steven Greenhut — Fri, 06 Nov 2009 23:37:55 -0500

A key argument that public-safety officials use to justify their absurdly high pension benefits –- i.e., “3 percent at 50” retirements that allow them to retire with 90 percent or more of their final year’s pay as early as age 50 -- is this: We die soon after retirement because of all the stresses and difficulties of our jobs. This is such a common urban legend that virtually every officer who contacts me mentions this “fact.” They never provide back-up evidence.

Here is one article I’ve been sent by police to make their point. It was written in 1999 by Thomas Aveni of the Police Policy Council, a police advocacy organization. Here is the key segment: “Turning our attention back towards the forgotten police shift worker, sleep deprivation must be considered a serious component of another potential killer: job stress. The cumulative effect of sleep deprivation upon the shift-working policeman appears to aggravate job stress, and/or his ability to cope with it.

"Even more troubling is the prospect that the synergy of job stress and chronic sleep indebtedness contributes mightily to a diminished life expectancy. In the U.S., non-police males have a life-expectancy of 73 years. Policemen in the U.S. have a life expectancy of 53-66 years, depending on which research one decides to embrace. In addition, police submit workman's compensation claims six times higher than the rate of other employees ...”

I don’t doubt that police work can be very stressful, but many jobs are stressful, many have long hours, many are more dangerous, many involve sleep deprivation. As intelligent adults, we all need to weigh the risk and benefits of any career choice. Aveni uses the high amount of workers compensation claims as evidence of the dangers of the job, but given the tendency of police and firefighters to abuse the disability system – miraculously discovering a disabling injury exactly a year from retirement, thus getting an extra year off and protecting half the pension from taxes – I’m not convinced this proves anything. Given the number of officers who are retired based on knee injuries, back aches, irritable bowel syndrome, acid reflux, etc., this suggests that police game the system and know their fellows on the retirement board will approve virtually any disability claim.

There are so many legal presumptions (if an officer develops various conditions or diseases it is legally presumed to be work related, whether or not it actually is work related) that bolster the scam. “Disabled” officers often go right out and get similar law enforcement jobs, which calls into question how disabling the injury really is. Regarding sleep deprivation, police and firefighters have secured schedules that minimize the long hours; then the officers often choose to work overtime for double salary, which perhaps is the real cause of sleep problems.

The big whopper in the Aveni article, however, is the claim that officers live to be 53-66. If that were so, there would be no unfunded liability problem because of pension benefits. Police officers would retire at 50-55, then live a few years at best.

But, for example, according to the state of California pubic employees' retirement system (CalPERS) actuary, police actually live longer than average these days, which isn’t surprising given that the earlier people retire and the wealthier they are, the longer they tend to live. And according to a 2006 report to the Oregon Public Employees Retirement System, these are the age-60 life expectancies for the system’s workers (meaning how many years after 60 they will live):

-- Police and fire males: 22.6
-- General service males: 23.4
-- Police and fire females: 25.7
-- General service females: 25.7

So we see that police and firefighters who retire at age 60 live, on average, well into their 80s. That’s real data and not the hearsay used by apologists for enormous police pensions.

CalPERS actuary David Lamoureux sent me a CalPERS presentation called “Preparing for Tomorrow,” from the retirement fund’s 2008 educational forum. The presentation features various “pension myth busters.”

Here is Myth #4 (presented as part of a Power Point presentation): “Safety members do not live as long as miscellaneous members.” CalPERS officials explain that “rumor has it that safety members only live a few years after retirement.” Actuarial data answers the question: “Do they actually live for a shorter time?” The presentation considers the competing facts: “Safety members tend to have a more physically demanding job, this could lead to a shorter life expectancy. However, miscellaneous members sit at their desk and might be more at risk to accumulating table muscle!” Fire officials, by the way, make identical claims about dying as early as police officials.

For answers, CalPERS looked at an experience study conducted by its actuarial office in 2004. It looked at post-retirement mortality data for public safety officials and compared it to mortality rates for miscellaneous government workers covered by the CalPERS system.

Here are the CalPERS life expectancy data for miscellaneous members:

-- If the current age is 55, the retiree is expected to live to be 81.4 if male, and 85 if female.
-- If the current age is 60, the retiree is expected to live to be age 82 if male, and 85.5 if female.
-- If the current age is 65, the retiree is expected to live to be age 82.9 if male, and 86.1 if female.

Here is the CalPERS life expectancy data for public safety members (police and fire, which are grouped together by the pension fund):

That’s no mistake. The numbers for public safety retirees are identical to those of other government workers. As CalPERS notes, average public safety officials retiree earlier than average miscellaneous members, so they receive their higher level of benefits for a much longer time.

Here is CalPERS again: “Verdict: Myth #4 Busted! Safety members do live as long as miscellaneous members.”

The next time you hear this “we die early” misinformation from a cop, firefighter or other public-safety union member (most of them probably believe it to be true, given how often they have read this in their union newsletters), send them to CalPERS for the truth!

I expected these numbers for the recently retired, given the pension enhancements and earlier retirement ages, but it seemed plausible that police in particular might have had a point about mortality rates in earlier days. But even that’s not true. A 1987 federal report from the National Criminal Justice Reference Center, “Police Officers Retirement: The Beginning of a Long Life,” makes the following point:

“'The average police officer dies within five years after retirement and reportedly has a life expectancy of twelve years less than that of other people.’ Still another author states, ‘police officers do not retire well.’ This fact is widely known within police departments. These statements (which are without supporting evidence) reflect a commonly held assumption among police officers.

"Yet, a search of the literature does not provide published studies in support. Two suggested sources, the Los Angeles City Police and Massachusetts State Police, have provided data which also appears to contradict these assumptions. Reported in this paper are results from a mortality study of retired Illinois State Police (ISP) officers. It suggests that ISP officers have as long, if not longer, life expectancy than the population as a whole. Similar results also arise when examining retirees from the Ohio Highway Patrol, Arizona Highway Patrol, and Kentucky State Police.”

The report also casts doubt on the commonly repeated statistic that police have higher rates of suicide and divorce than other people. The federal report found the divorce rates to be average and suicide rates to be below average. This is important information because it debunks a key rationale for the retirement expansions, although more recent data need to be examined on divorce/suicide rates.

Police have an oftentimes tough job, but many Americans have oftentimes tough and sometimes dangerous jobs. This needs to be kept in perspective. Public officials need to deal in reality rather than in emotionally laden fantasy when considering the public policy ramifications of pensions.

This article was excerpted from Greenhut’s forthcoming book, “Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives And Bankrupting The Nation” to be published by The Forum Press in November.

Congress and the Administration Take Aim at Local Democracy

Wendell Cox — Thu, 05 Nov 2009 23:37:10 -0500

Local democracy has been a mainstay of the US political system. This is evident from the town hall governments in New England to the small towns that the majority of Americans choose to live in today.

In most states and metropolitan areas, substantial policy issues – such as zoning and land use decisions – are largely under the control of those who have a principal interest: local voters who actually live in the nation’s cities, towns, villages, townships and unincorporated county areas. This may be about to change. Two congressional initiatives – the Boxer-Kerry Cap and Trade Bill and the Oberstar Transportation Reauthorization Bill – and the Administration's “Livability Partnership” take direct aim at local democracy as we know it.

The Boxer-Kerry Bill: The first threat is the proposed Senate version of the “cap and trade” bill authored by Senator Barbara Boxer-Kerry (D-California). This bill, the Clean Energy Jobs and American Power Act (S. 1733), would require metropolitan planning organizations (MPOs) to develop greenhouse gas emission reduction plans. In these plans, the legislation would require consideration of issues such as increasing transit service, improvements to intercity rail service and “implementation of zoning and other land use regulations and plans to support infill, transit-oriented development or mixed use development.” This represents a significant step toward federal adoption of much of the “smart growth” or “compact development” agenda.

At first glance, it may seem that merely requiring MPOs to consider such zoning and land use regulations seems innocent enough. However, the incentives that are created by this language could well spell the end of local control over zoning and land use decisions in the local area.

True enough, the bill includes language to indicate that the bill does not intend to infringe “on the existing authority of local governments to plan or control land use.” Experience suggests, however, that this would provide precious little comfort in the behind-the-scenes negotiations that occur when a metropolitan area runs afoul of Washington bureaucrats.

The federal housing, transportation and environmental bureaucracies have also been supportive of compact development policies. As these agencies develop regulations to implement the legislation, they could well be emboldened to make it far more difficult for local voters to retain control over land use decisions. There could be multiple repeats of the heavy-handedness exercised by the EPA when it singled out Atlanta for punishment over air quality issues. In response, the Georgia legislature was, in effect, coerced into enacting planning and oversight legislation more consistent with the planning theology endorsed by EPA’s bureaucrats. No federal legislation granted EPA the authority to seek such legislative changes, yet they were sought and obtained.

There is also considerable support for the compact development agenda at the metropolitan area level. The proclivity of metropolitan and urban planners toward compact development is so strong as to require no encouragement by federal law. The emerging clear intent of federal policy to move land use development to the regional level and to densify existing communities could embolden MPOs to propose plans that pressure local governments to conform their zoning to central plans (or overarching “visions”) developed at the regional level. Along the way, smaller local jurisdictions could well be influenced, if not coerced into actions by by over-zealous MPO staff claiming that federal law and regulation require more than the reality. It would not be the first time. Further, MPOs and organizations with similar views will lobby state legislatures to impose compact development policies that strip effective control of zoning and land use decisions from local governments.

Surface Transportation Reauthorization: The second threat is the Surface Transportation Authorization Act (STAA or reauthorization) draft that has been released by Chairman James Oberstar (D-Minnesota) of the House Transportation and Infrastructure Committee. This bill is riddled with requirements regarding consideration of land use restrictions by MPOs and states. Unlike the Boxer-Kerry bill, the proposed STAA includes no language denying any intention to interfere with local land use regulation authority.

Like the Boxer-Kerry Bill, the Oberstar bill significantly empowers the Department of Transportation and the Environmental Protection Agency and poses similar longer term risks.

The Administration’s “Livability Agenda:” These legislative initiatives are reinforced by the Administration’s “Livability Agenda,” which is a partnership between the EPA, the Department of Housing and Urban Development and the Department of Transportation. Among other things, this program is principally composed of compact development strategies, including directing development to certain areas, which would materially reduce the choices available to local government. Elements such as these could be included in an eventual STAA bill by the Obama Administration.

The Livability Agenda: Threatening Livability: Regrettably, the Boxer-Kerry bill, the Oberstar bill and the “Livability Agenda” will make virtually nothing more livable. If they are successful in materially densifying the nation’s urban areas, communities will be faced with greater traffic congestion, higher congestion costs and greater air pollution. Despite the ideology to the contrary, higher densities increase traffic volumes within areas and produce more health hazards or more intense local air pollution. As EPA models indicate, slower, more congested traffic congestion produces more pollution than more freely flowing traffic, and the resulting higher traffic volumes make this intensification even greater.

There are also devastating impacts on housing affordability that occur when “development is directed.” This tends to increase land prices, which makes houses more expensive. This hurts all future home buyers and renters, particularly low income and minority households, since rent increases tend to follow housing prices. It is particularly injurious to low income households, which are disproportionately minority. The large gap between majority and minority home ownership rates likely widen further. So much for the American Dream for many who have not attained it already.

The Marginal Returns of Compact Development Policies: These compact development initiatives continue to be pursued even in the face of research requested by the Congress indicating that such policies have precious little potential. The congressionally mandated Driving the Built Environment report indicates that driving and greenhouse gas emissions could be higher in 2050 than in 2000 even under the maximum deployment of compact development strategies.

Local Governments at the Table? The nation’s local governments should “weigh in” on these issues now, while the legislation is being developed. If they wait, they could find themselves too late to the table when the EPA comes to bully them to follow not what the local voters want, but what the planners prefer. Local democracy will be largely dead, a product of a system that concentrates authority – and perceived wisdom – in the hands of the central governments, at the regional and national level.

Even more, local citizens and voters need to be aware of the risk. Again, it will be too late when MPOs or other organizations, whether at their own behest or that of a federal agency, force the character of neighborhoods to be radically changed, as Tony Recsei pointed out is already occurring in Australia.

Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. He was born in Los Angeles and was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley. He is the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

Detroit: Urban Laboratory and the New American Frontier

Aaron M. Renn — Wed, 04 Nov 2009 23:37:37 -0500

The troubles of Detroit are well-publicized. Its economy is in free fall, people are streaming for the exits, it has the worst racial polarization and city-suburb divide in America, its government is feckless and corrupt (though I should hasten to add that new Mayor Bing seems like a basically good guy and we ought to give him a chance), and its civic boosters, even ones that are extremely knowledgeable, refuse to acknowledge the depth of the problems, instead ginning up stats and anecdotes to prove all is not so bad.

But as with Youngstown, one thing this massive failure has made possible is ability to come up with radical ideas for the city, and potentially to even implement some of them. Places like Flint and Youngstown might be attracting new ideas and moving forward, but it is big cities that inspire the big, audacious dreams. And that is Detroit. Its size, scale, and powerful brand image are attracting not just the region’s but the world’s attention. It may just be that some of the most important urban innovations in 21st century America end up coming not from Portland or New York, but places like Youngstown and, yes, Detroit.

Let’s refresh with this image showing the scale of the challenge in the city of Detroit proper:

There are zillions of pictures to illustrate the vast emptiness in Detroit. Kaid Benfield at NRDC posted these:

This phenomenon prompted someone to coin the term “urban prairie” to capture the idea of vast tracts of formerly urbanized land returning to nature. The folks at Detroit’s best discussion site, DetroitYES, posted this before and after of the St. Cyril neighborhood. Before:

After:

A site named “Sweet Juniper” recently had a fantastic photo of the spontaneous creation of “desire line” paths across all this vacant land. You should click to enlarge this photo.

One natural response is the “shrinking cities” movement. While this has gotten traction in Youngstown and Flint, as well as in places like Germany, it is Detroit that provides the most large scale canvas on which to see this play out, as well as the place where some of the most comprehensive and radical thinking is taking place. For example, the American Institute of Architects produced a study that called for Detroit to shrink back to its urban core and a selection of urban villages, surrounded by greenbelts and banked land. Here’s a picture of their concept:

It seems likely that this will get some form of traction from officialdom, as this article suggests, though implementation is likely to be difficult.

Detroit is also attracting dreams of large scale renewal through agriculture, as Mark Dowie writes in Guernica (hat tip @archizoo).

Were I an aspiring farmer in search of fertile land to buy and plow, I would seriously consider moving to Detroit. There is open land, fertile soil, ample water, willing labor, and a desperate demand for decent food. And there is plenty of community will behind the idea of turning the capital of American industry into an agrarian paradise. In fact, of all the cities in the world, Detroit may be best positioned to become the world’s first one hundred percent food self-sufficient city.

This isn’t just a crazy idea from some guy who lives in California. He documents several examples of people right now, today growing food in Detroit. It wouldn’t surprise me, frankly, if Detroit produces more food inside its borders today than any other traditional American city.

About five hundred small plots have been created by an international organization called Urban Farming, founded by acclaimed songwriter Taja Sevelle. Realizing that Detroit was the most agriculturally promising of the fourteen cities in five countries where Urban Farming now exists, Sevelle moved herself and her organization’s headquarters there last year. Her goal is to triple the amount of land under cultivation in Detroit every year. All food grown by Urban Farming is given free to the poor. According to Urban Farming’s Detroit manager, Michael Travis, that won’t change.

The fact that Urban Farming moved to Detroit is exactly the effect I’m talking about. To anyone with aspirations in this area, it is Detroit that offers the greatest opportunity to make your mark. It is the ultimate blank canvas. For urban agriculture and many other alternative urban dreams, it is Detroit, not New York City that is the ultimate arena in which to prove yourself.

It’s not just farmers; intellectuals and artists of various types are drawn to Detroit, both to study it and pursue ideas about the remaking of the city:

Detroit has achieved something unique. It has become the test case for all sorts of theories on urban decay and all sorts of promising ideas about reviving shrinking cities.

“It’s unbelievable,” said Sue Mosey, president of the University Cultural Center Association, who has been interviewed recently by two separate PBS crews and an Austrian journalist writing about Detroit.

“All of us have been inundated with all of these people who somehow think that because we’re so bottomed out and so weak-market, that this is this incredible opportunity,” Mosey said.

Robin Boyle, a professor of urban planning at Wayne State University who has been interviewed by numerous visitors, echoed that sentiment.

“They realize that there is an interesting story to tell, that has real characters, but even more, they discover a place that is simply not like everywhere else,” he said.

Toby Barlow wrote in the New York Times about out of towners buying up $100 houses, moving to Detroit, and doing all sorts of interesting things with them:

Recently, at a dinner party, a friend mentioned that he’d never seen so many outsiders moving into town…Two other guests that night, a couple in from Chicago, had also just invested in some Detroit real estate. That weekend Jon and Sara Brumit bought a house for $100.
….
A local couple, Mitch Cope and Gina Reichert, started the ball rolling. An artist and an architect, they recently became the proud owners of a one-bedroom house in East Detroit for just $1,900. Buying it wasn’t the craziest idea. The neighborhood is almost, sort of, half-decent. Yes, the occasional crack addict still commutes in from the suburbs but a large, stable Bangladeshi community has also been moving in.

So what did $1,900 buy? The run-down bungalow had already been stripped of its appliances and wiring by the city’s voracious scrappers. But for Mitch that only added to its appeal, because he now had the opportunity to renovate it with solar heating, solar electricity and low-cost, high-efficiency appliances.

Buying that first house had a snowball effect. Almost immediately, Mitch and Gina bought two adjacent lots for even less and, with the help of friends and local youngsters, dug in a garden. Then they bought the house next door for $500, reselling it to a pair of local artists for a $50 profit. When they heard about the $100 place down the street, they called their friends Jon and Sarah.
….

But the city offers a much greater attraction for artists than $100 houses. Detroit right now is just this vast, enormous canvas where anything imaginable can be accomplished. From Tyree Guyton’s Heidelberg Project (think of a neighborhood covered in shoes and stuffed animals and you’re close) to Matthew Barney’s “Ancient Evenings” project (think Egyptian gods reincarnated as Ford Mustangs and you’re kind of close), local and international artists are already leveraging Detroit’s complex textures and landscapes to their own surreal ends.

In a way, a strange, new American dream can be found here, amid the crumbling, semi-majestic ruins of a half-century’s industrial decline. The good news is that, almost magically, dreamers are already showing up. Mitch and Gina have already been approached by some Germans who want to build a giant two-story-tall beehive. Mitch thinks he knows just the spot for it.

It’s what Jim Russell likes to call “Rust Belt chic”, and Detroit has it in spades.

This piece also highlights the absolutely crucial advantage of Detroit. It’s possible to do things there. In Detroit, the incapacity of the government is actually an advantage in many cases. There’s not much chance a strong city government could really turn the place around, but it could stop the grass roots revival in its tracks.

Can you imagine a two-story beehive in Chicago? In many cities where strong city government still functions effectively, citizens are tied down by an array of regulations and permits that are actually enforced in most cases. Much of the South Side of Chicago has Detroit like characteristics, but the techniques of renewal in Detroit won’t work because they are likely against code and would be shut down the minute someone complained. Just as one quick example, my corner ice cream stand dared to put out a few chairs for patrons to sit on while enjoying a frozen treat on a hot day. The city cited them for not having a license. So they took them away and put up a “bring your own chair” sign. The city then cited them for that too. You can’t do anything in Chicago without a Byzantine array of licenses, permits, and inspections.

In central Indianapolis, which is in desperate need of investment, where the city can’t fill the potholes in the street, etc., the minute a few yuppies buy houses in an area and fix them up, they immediately petition for a historic district, a request that has never been refused, ensuring that anyone who ever wants to do anything will be forced to run a costly and grueling gauntlet of variances, permits, hearings, etc. Only the most determined are willing to put up with that.

In most cities, municipal government can’t stop drug dealing and violence, but it can keep people with creative ideas out. Not in Detroit. In Detroit, if you want to do something, you just go do it. Maybe someone will eventually get around to shutting you down, or maybe not. It’s a sort of anarchy in a good way as well as a bad one. Perhaps that overstates the case. You can’t do anything, but it is certainly easier to make things happen there than in most places because the hand of government weighs less heavily.

What’s more, the fact that government is so weak has provoked some amazing reactions from the people who live there. In Chicago, every day there is some protest at City Hall by a group from some area of the city demanding something. Not in Detroit. The people in Detroit know that they are on their own, and if they want something done they have to do it themselves. Nobody from the city is coming to help them. And they’ve found some very creative ways to deal with the challenges that result. Consider this from the Dowie piece:

About 80 percent of the residents of Detroit buy their food at the one thousand convenience stores, party stores, liquor stores, and gas stations in the city. There is such a dire shortage of protein in the city that Glemie Dean Beasley, a seventy-year-old retired truck driver, is able to augment his Social Security by selling raccoon carcasses (twelve dollars a piece, serves a family of four) from animals he has treed and shot at undisclosed hunting grounds around the city. Pelts are ten dollars each. Pheasants are also abundant in the city and are occasionally harvested for dinner.

This might sound awful, and indeed it is. But it is also an inspiration and a testament to the human spirit and defiant self-reliance of the American people. I grew up in a poor rural area where, while hunting is primarily recreational, there are still many people supplementing their family diet with wild game. Many a freezer is full of deer meat, for example. And of course, rural residents have long gardened, freezing and canning the results to help get them through the winter. So this doesn’t sound quite so strange to me as it might to you. The fate of the urban poor and the rural poor are more similar than is often credited. And contrary to stereotypes the urban poor often display amazing grit and ingenuity, and perform amazing feats to sustain themselves, their families and communities.

As the focus on agriculture and even hunting show, in Detroit people are almost literally hearkening back to the formative days of the Midwest frontier, when pioneer settlers faced horrible conditions, tough odds, and often severe deprivation, but nevertheless built the foundation of the Midwest we know, and the culture that powered the industrial age. No doubt in the 19th century many of those sitting secure in their eastern citadels thought these homesteaders, hustlers, and fortune seekers crazy for leaving the comforts of civilization to head to places like Iowa and Chicago. But some saw the possibilities of what could be and heeded the call to “Go West, young man.” We’ve come full circle.

More Detroit

Detroit: Do the Collapse
Detroit: Not the Future of the American City
For talent – good jobs, cools places, new narrative (Crain’s Detroit Business – featuring Yours Truly)

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Getting Real About “Green” Jobs

Rob Sentz — Wed, 04 Nov 2009 00:00:41 -0500

Over the past year, Economic Modeling Specialists, Inc. (EMSI) has been fielding questions from local planners (workforce boards, community colleges, and economic developers) on how to look at green jobs, particularly at the regional level. Perhaps nothing has been more hyped, or misunderstood, than the potential impact of this sector on local economies.

In order to wade through the rhetoric and often overblown expectations, we’ve been doing our best to link labor market data to potential green sectors so people can gain an understanding of trends, earnings, education levels, and skills associated with “green occupation clusters”. So far, we have made three general observations:

Many of these jobs are going to fall within the construction and manufacturing sectors (e.g., welders, roofers, HVAC installers, etc.),
Based on a lack of understanding, concrete information, and large scale demand, green jobs pose a very difficult development mission for local planners, and
It is vital to speak “from the data” as much as possible.

Such realism is necessary. Given the recession, job loss, and our nation’s otherwise dismal financial condition, many are now questioning the continued emphasis on green jobs, climate change, and cap-and-trade legislation. In recent months we have seen a sizable pushback against some of this policy from groups ranging from the American Farm bureau and even the educational community. Recently, for example, Inside Higher Ed wrote about how “some leaders in workforce development are concerned that more traditional skill trades within the manufacturing and construction fields are being deemphasized by community colleges looking for federal dollars to support newfangled programs.”

The public is also getting skeptical. A Gallup poll indicated that the recession has dried up some of the support for increased environmental regulation. Similar surveys by Rasmussen and Pew suggest a similar trend in popular opinion.

None of this suggests that most Americans, or most business, oppose environmental protection. It’s just that that economic growth and environmental protection should not be mutually exclusive.

Increasingly we find ourselves at a crossroads between two competing points of view – one that thinks that we need to restore economic stability before we deal with environmental issues, and one that believes that if we fail to address environmental concerns aggressively right now, we are forfeiting our future.

Chasing Trends vs. Being Demand Driven

The promise of “green jobs” has the allure to square this circle, and reconcile the needs of the economy and the environment. This causes a kind of thinking reminiscent of that associated with the ‘90s dot-com boom. In that era, software and information was the next big thing. Many regional developers tried to get into the game, and some failed miserably. When the bubble burst, many were left empty-handed and embarrassed that they had essentially just wasted a lot of the public’s time, energy, and money on something that they frankly didn’t understand or have any real reason (in a regional context) to be pursuing.

Given this experience, it’s not surprising that green is being met with skepticism by some local planners, who can and should be rigorously dedicated to spending their dollars wisely and only on things that will advance their region’s businesses and people. This seems to come from an understandable concern that economic development should essentially be “demand-driven” and in touch with needs of the local community.

At the same time, regional development can be traced back to the needs of local industry. The activities, interests, and employment of local industries directly and indirectly drive much of the employment and earnings in an area (the concept of an economic base). This leads some loath to invest resources into an emerging sector or a new policy, such as green, where there is little demand, enough jobs, or the background to justify the efforts.

“Policy” vs. “Environment”

Right now, the primary struggles with green development come from: (1) actually understanding what “green” is and (2) knowing which industries people need to be prepared/trained for. Some of the problem stems from the fact that green is happening according to a top-down, policy driven approach rather than an industry driven one.

In the U.S. we often see industry development happening from the ground up (e.g., from the local level and up to the national level). Industries develop hubs of production (e.g., Silicon Valley, the Research Triangle, and Hollywood). Regions benefit from this and become specialized and competitive at producing and exporting something that is demanded by the larger economy. This gives rise to specific skill and knowledge sets which further enhance the development of a region. Green jobs don’t really work this way. The “greening” of our economy has sprouted from a particular ideological point of view (global warming, overpopulation, etc.), that drive the initiatives, many of them associated with the stimulus.

As is often the case, it is not particularly easy to translate the broad rhetoric, concepts, and policy (things like “clean tech”) into local industries, impacts, skills, training programs, and demand. At the local level, it is also incredibly difficult to project future trends of what jobs and industries will begin to thrive or fail. Those who try to use only national predictions to implement new regional training programs or to develop local policies could find their new programs may not result in tangible benefits to the region. In a recession folks need and want jobs (in some cases, any job will do), and discussions about how something like clean tech is going to be the next big thing can be really frustrating (think “dot-com” bubble).

Finally, a big part of the frustration around green jobs actually comes down to semantics. Politicians and news anchors often refer to green jobs as some sort of new “industry.” Yet in reality green is much less about “what” is being produced than “how” things are produced.

In this sense, in order to have “green” industry, you first need to have an industry that can be, if you will, “greened”. Here is an illustration that points out the nuance: let’s imagine you have two tire manufacturers. One produces tires using traditional “non-green” methods and the other uses recycled materials and can be classified as “green.” At the end of the day are they both manufacturing tires? Well, yes of course. Are they part of different industries? No. Both companies also likely employ the same sort of people, use the same sort of equipment, and have similar sales and supply chains. Also, from a training/workforce development perspective these industries are going to look pretty identical – with maybe a few minor skills differences.

Seen from this angle, green is not actually about creating a new industry sector in either a general or specific sense. Rather, it’s more about changing and retooling all existing industry sectors to make them operate differently.

It Needs to Be Data-Driven

In the United States, we have a huge amount of data at our disposal for development decisions. Our nation has over 1,800 (and counting) well-established industry codes (NAICS codes) that are standardized for the entire country. The 20 big industry sectors that compose our economy exist because of broad, long-lasting, nationwide demand. But right now, local developers cannot take such a well-researched, data-driven approach to green. There are a lot of people who are highly in favor of green, but in many ways, they don’t bring the sort of objectivity needed to hash things out for the sake of the local workforce. What if green actually isn’t a good idea for a specific community? Something like Biotech is great if you can have it, but if it’s not the right fit for the community, forcing it can be a bad thing.

Final Remark

For green to work at the local level, it needs to be demand-driven. It needs to be harmonized with local development efforts, and it must complement and not fight against regional economies. This means helping and not hurting local industries with too much regulation, and allowing regional developers to stay focused on longer-term efforts as opposed to short-term trends.

Do we want green to succeed? Well, sure. However, as the polls show, we will not have these things at the expense of economic growth. All this is to say that people are going to be more supportive of the green movement if it embraces another aspect of sustainability – economic sustainability. The green movement and economic considerations are not mutually exclusive. If the economy continues to suffer, the green movement will suffer as there will be no money or opportunities to invest in green technologies. Only a broad based economic recovery – based in the revival of productive industry – can make green industry not only desirable, but practicable.

Rob Sentz is the marketing director at EMSI, an Idaho-based economics firm that provides data and analysis to workforce boards, economic development agencies, higher education institutions and the private sector. He is the author of a series of green jobs white papers.

Illustration by Mark Beauchamp

Numbers Don't Support Migration Exodus to "Cool Cities"

Joel Kotkin — Tue, 03 Nov 2009 00:53:52 -0500

For the past decade a large coterie of pundits, prognosticators and their media camp followers have insisted that growth in America would be concentrated in places hip and cool, largely the bluish regions of the country.

Since the onset of the recession, which has hit many once-thriving Sun Belt hot spots, this chorus has grown bolder. The Wall Street Journal, for example, recently identified the "Next Youth-Magnet Cities" as drawn from the old "hip and cool" collection of yore: Seattle, Portland, Washington, New York and Austin, Texas.

It's not just the young who will flock to the blue meccas, but money and business as well, according to the narrative. The future, the Atlantic assured its readers, did not belong to the rubes in the suburbs or Sun Belt, but to high-density, high-end places like New York, San Francisco and Boston.

This narrative, which has not changed much over the past decade, is misleading and largely misstated. Net migration, both before and after the Great Recession, according to analysis by the Praxis Strategy Group, has continued to be strongest to the predominately red states of the South and Intermountain West.

This seems true even for those seeking high-end jobs. Between 2006 and 2008, the metropolitan areas that enjoyed the fastest percentage shift toward educated and professional workers and industries included nominally "unhip" places like Indianapolis, Charlotte, N.C., Memphis, Tenn., Salt Lake City, Jacksonville, Fla., Tampa, Fla., and Kansas City, Mo.

The overall migration numbers are even more revealing. As was the case for much of the past decade, the biggest gainers continue to include cities such as San Antonio, Dallas and Houston. Rather than being oases for migrants, some oft-cited magnets such as New York, Boston, Los Angeles and Chicago have all suffered considerable loss of population to other regions over the past year.

Much the same pattern emerges when you look at longer-term state demographic patterns. A recent survey by the Empire Center for New York State Policy found that the biggest net losers in terms of per capita outmigration between 2000 and 2008 were, with the exception of Louisiana, all blue state bastions. New York residents lead in terms of rate of exodus, closely followed by the District of Columbia, Michigan, Pennsylvania, Massachusetts and California.

An even greater shock to the sensibilities of the insular, Manhattan-centric media, the report found that most of the movement from the Empire State was not from the much-dissed suburbia, but from that hip and cool paragon, New York City. This can not be ascribed as a loss of the unwanted: According to the report, those leaving the city had 13% higher incomes than those coming in.

How can this be, when everyone who's smart and hip is headed to the Big Apple? This question was addressed in a report by the center-left, New York-based Center for an Urban Future. True, considerable numbers of young, educated people come to New York, but it turns out that many of them leave for the suburbs or other states as they reach their peak earning years.

Indeed, it's astonishing given the many clear improvements in New York that more residents left the five boroughs for other locales in 2006, the peak of the last boom, than in 1993, when the city was in demonstrably worse shape. In 2006, the city had a net loss of 153,828 residents through domestic out-migration, compared to a decline of 141,047 in 1993, with every borough except Brooklyn experiencing a higher number of out-migrants in 2006.

Of course, blue state boosters can point out that the exodus has slowed with the recession, as opportunities have dried up elsewhere. True, the flood of migration has slowed across the nation. Yet it has only slowed, not dried up. When the economy revives, it's likely to start flowing heavily again.

More important, the key group leaving New York and other so-called "youth-magnets" comprises the middle class, particularly families, critical to any long-term urban revival. This year's Census shows that the number of single households in New York has reached record levels; in Manhattan, more than half of all households are singles. And the Urban Future report's analysis found that even well-heeled Manhattanites with children tend to leave once they reach the age of 5 or above.

The key factor here may well be economic opportunity. Virtually all the supposedly top-ranked cities cited in this media narrative have suffered below-average job growth throughout the decade. Some, like Portland and New York, have added almost no new jobs; others like San Francisco, Boston and Chicago have actually lost positions over the past decade.

In contrast, even after the current doldrums, San Antonio, Orlando, Houston, Dallas and Phoenix all boast at least 5% more jobs now than a decade ago. Among the large-narrative magnet regions only one--government-bloated greater Washington--has enjoyed strong employment growth.

The impact of job growth on the middle class has been profound. New York City, for example, has the smallest share of middle-income families in the nation, according to a recent Brookings Institution study; its proportion of middle-income neighborhoods was smaller than that of any metropolitan area except Los Angeles.The same pattern has also emerged in what has become widely touted as America's "model city"--President Obama's adopted hometown of Chicago.

The likely reasons behind these troubling trends are things rarely discussed in "the narrative"--concerns like high costs, taxes and regulations making it tough on industries that employ the middle class. One clear culprit: out of control state spending. State spending in New York is second per capita in the nation (anomalous Alaska is first); California stands fourth and New Jersey seventh. Illinois is down the list but coming up fast. Over the past decade, while its population grew by only 7%, Illinois' spending grew by an inflation-adjusted 39%.

The problem here is more than just too-large government; it lies in how states spend their money. Massive public spending increases over the past decade in California, New Jersey, Illinois and New York have gone overwhelmingly into the pockets and pensions of public employees. It certainly has not flowed into such basic infrastructure as roads, bridges and ports that are needed to keep key industries competitive.

The American Association of State Highway Transportation, for example, ranked New York 43rd in the country and New Jersey dead last in terms of quality of roads. Some 46% of the Garden State's roads were rated in poor condition, compared with the national average of 13%, even as the state's spending reached new highs. The typical New Jersey driver spends almost $600 a year in auto repairs necessitated by the poor conditions of the roads.

In contrast, states in the South and parts of the Plains tend to pour their public resources into productive uses. Cities like Mobile, Ala., Houston, Charleston, S.C., and Savannah, Ga., have been investing in port facilities to take advantage of the planned widening of the Panama Canal. The primary goal is to take business away from the increasingly expensive, overregulated and under-invested ports of the Northeast and West Coast. Similarly, places like Kansas City and the Dakotas are looking to boost their basic rail and road networks to support export-heavy industries.

Even in the face of the Obama administration's strongly urban-centric, blue state-oriented economic policy, these generally less than hip places appear poised to grow as the economy recovers. Virtually all the top 10 economies that have withstood the recession come from outside the "youth-magnet" field: San Antonio; Oklahoma City; Little Rock, Ark.; Dallas, Baton Rouge, La.; Tulsa, Okla., Omaha, Neb.; Houston and El Paso, Texas. The one exception to this rule, Austin, also benefits from being located in solvent, generally low-tax Texas.

This continued erosion of jobs and the middle class from the blue states and cities is not inevitable. Many of these places enjoy enormous assets in terms of universities, strategic location, concentrations of talented workers and entrenched high-wage industries. But short of a massive and continuing bailout from Washington, the only way to reverse their decline will be a thorough reformation of their governmental structure and policies. No narrative, no matter how well spun, can make up for that reality.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin Press early next year.

Housing Design: Create The Next Classic

Rick Harrison — Sun, 01 Nov 2009 23:37:33 -0500

I often compare home marketing to automotive marketing, not because I was raised in Detroit and am somewhat of a motor head, but because these are two very big ticket items that have been developed and marketed in very different ways. You may think that auto companies are huge corporate conglomerates, and builders are mostly small, local companies selling a home or two, but the major builders certainly are not small concerns. A major builder selling 50,000 homes at $250,000 each would generate the same total income as a small auto company selling 500,000 cars at $25,000 each. Yet, there has been much more product research, development, testing, and marketing on cars, SUVs or trucks than on homes.

To “drive” this comparison home consider the following: Compare the specifications on a $140,000 (adjusted for inflation) 30 year old Ferrari 308 which was state of the art in 1980, and even the most basic car, for example a Hyundai Genesis Coupe. The two passenger 300 horsepower Ferrari would do 0-60 in 6.8 seconds with a top speed of 142 HPH, slower than the $25,000 Hyundai ‘s 0-60 in 5.5 seconds, top speed at 149 MPH. The Hyundai would actually make that hairpin turn with a computer assisted 0.90g lateral acceleration, while the Ferrari would slide into the roadside ditch at only 0.81g.

And the list goes on. The Hyundai adds 10 more highway MPG to the Ferrari’s 16 MPG. Watch out for deer? At an emergency stop from 60 MPH the Hyundai takes only 111 feet, a whopping 42 feet less than the Ferrari which plows right through Bambi. After adjusting for inflation, the specifications of the Hyundai blow past the Ferrari for 80% less money. Reliability? Not even close. The Ferrari 308 owner will be on a first name basis with his or her mechanic, and probably even know his family.

So… while it seems stagnant at times, the auto industry has still made tremendous progress. From a style, materials, and overall design standpoint, any of today’s cars and trucks render those built in the early 1980s obsolete. The industry offers an astonishingly better product than it did twenty-five years ago. This is despite a few moments when auto manufacturers lost their way. Remember 1981 — a recession with car showrooms in shambles and the government rescuing Chrysler — and Lee Iacocca touting the “K” Car? My, auto makers have come a long way!

Now let’s compare the 1980 suburban single family home to the 2006 (the height of the housing market) suburban single family home.

From National Association of Home Builders data we see that the average 1980 house was just over $76,000 and averaged about 1,800 square feet. Adjusted for inflation, that 1980 home would be approximately $190,000 in 2006 dollars. This equates to approximately $105 a square foot. The 1980s were also the age of large sprawling suburban lots; 10,000 sq.ft would have been considered, in some areas, too small. Suburban densities of two units per acre were typical in the north, with higher densities in the three to four unit per acre range as one traveled south. The 1980’s home price included a spacious lot.

Fast forward through 26 years (of evolution?). Homes gradually increased in size to an average of 2,414 sq.ft. (again, NAHB data). The typical home in 2006 cost $264,000, or $109 a square foot. Essentially, the home built at the peak of the market cost only slightly more than the home built in 1980. Lot areas generally have come down in size. In the south where densities were already higher, the lot size reduction was minimal, but in the north that 1980 10,000 sq.ft. lot that was once considered small would today be considered quite large.

The 1980s home would have been built to a lower standard with little in energy conservation; it was wasteful. The home built 25 years later — at the height of the market in 2006 — would have been built to much higher standards, both in construction and in energy efficiency.

Today's consumer may favor the older, 1980s suburban home. It is likely built in an area with mature landscaping, local conveniences, and established schools, and it is probably located closer to town (employment), on a larger lot. Yes the home is slightly older, but not significantly visually different than the more recent home, at least to the naked eye. The transition from the previous three decades, 1950 to 1980, was drastic. But it was not so in the past 30 years.

The new suburban home in today’s market is typically on the outer edge of urbanization. The confidence level that services and schools will be developed in a timely manner is much lower. There simply has not been a significant change in housing during the past three decades. The garage-forward 1980s home that proudly displays massive garage doors that define the streetscape is similar to the suburban homes built today, except the home built today might also include the obligatory porch sitting next to the garage.

Three decades ago Chrysler responded to market changes with the K car, a cheap car that was commercially successful. Notice how many K cars you see on the road today? Longevity, reliability and quality were not its strong points. Cars are temporary. They are disposable and recyclable. Today's home builders are largely responding to the housing market with a K car attitude of scrimping that will only make the homes built on yesterday’s developments seem even more attractive.

But housing stock cannot survive on temporary solutions that respond to short trends. The lot that is sold today is likely to be around for many centuries. The home will likely be remodeled over time, but its foundation may last as long as the lot. There are no junk yards for houses...well there are, and they're called slums.

Builders rely on suppliers to develop products that improve the housing stock. For example, the vinyl cladding era of the 1980s has been (somewhat) replaced by more attractive concrete based products and wood alternatives. The problem is that these vinyl alternatives are often more expensive – in some cases, much more.

It’s time for builders to respond by following the automotive industry. That means offering enough of a design revolution to attract new customers. Investing in research and development at a time when banks turn away builders and developers might seem an impossible task. As a design and technology company, we know that first hand. We have a huge investment in future technologies that will not be available until the beginning of 2010.

Before the recession, we typically invested 10% of our gross income (designing new developments) in new technologies. Planning and architecture is not exactly a thriving industry today. Banks are not interested in funding anything related to land development, sustainability, or software. To keep development on track, our investment now represents over 50% of our total income.

Getting through this period has been tough, but at the end of the day we will have a revolutionary product with a new range of services that will benefit development-related industries. Architects can respond to a down market by investing their down time in experimentation and development of better design methods to increase the value of housing, instead of sitting around waiting for a client to call.

During this past decade people got used to making a new home purchase to supplement their income, assuming that home values would rise several thousands of dollars annually. Those days are gone. Give consumers a new reason to buy: a better product. When future housing customers have the opportunity to significantly increase their living standards by purchasing new homes vs. staying where they are, they will want to buy new again.

Rick Harrison is President of Rick Harrison Site Design Studio and author of Prefurbia: Reinventing The Suburbs From Disdainable To Sustainable. His website is rhsdplanning.com.

Lost City

Daniel Jelski — Sun, 01 Nov 2009 01:00:00 -0400

We agreed, last time, to meet at the corner of Yonge & Bloor – Toronto's busiest subway stop.

Presumably you'll arrive by subway. There are two main lines: one east-west along Bloor-Danforth, from Kipling Ave. in Etobicoke to Scarborough Town Centre. The intersecting north-south line is actually double. One branch runs almost the entire length of Yonge St., from Finch to Union Station. From there it doubles back, heading north again under University Ave and Avenue Road, finally ending near Downsview Airport. They intersect at three stations, all along Bloor Street: Bloor & Spadina, Bloor & Avenue Road (St. George), and Bloor & Yonge. The latter is where you want to get off.

The Toronto subway is clean, quiet, convenient and runs on time. It is also very slow; I doubt top speed is much over 30 mph. You can get most places you need to go, but you won't get there quickly.

Another way to get close to Yonge & Bloor is by street car. Actually, the best you'll do is Yonge and College, and then you've got a few blocks to walk. Tourists and Americans love the street cars – they are fun. For the commuter they are a pain. Mostly they share right-of-way with cars. This slows down the street car, and worse, slows vehicle traffic to the same pace (they're almost impossible to pass). The result: traffic down Queen St. rolls by at a solid 15 mph. This is not an efficient mass transit method, but tourists love it.

Metro Toronto consists of six boroughs: Toronto, Scarborough, North York, Etobicoke, York, and East York. The latter two are very small - I have never actually "been" to either; I've just driven through. I've stayed over night in all of the others. Metro Toronto resulted from city-county consolidation of York County in 1954. (Toronto was originally founded as York, but changed the name shortly after, presumably to avoid confusion with New York.)

Skipping the two little ones (directly adjacent to Toronto proper), Toronto City is the original city. It is bounded by the lake to the south and very roughly Eglinton Ave. in the north, the Don Valley to the east, and the Humber River in the West. Scarborough is east of the Don Valley, Etobicoke is west of the Humber, and North York is north of Eglinton.

So here we are at Yonge and Bloor Streets. Let's go east. Bloor ends within a mile at Parliament St. and then becomes Danforth. Danforth crosses over the Don Valley in a most dramatic way. Given that Toronto cannot effectively use its lakefront, the most prominent natural landmark in the city is the Don Valley. This is a deep gorge cut by the Don River, which flows south to Lake Ontario, east of the city centre. The gorge is a park traversed by the Don Valley Parkway - an expressway that runs along the bottom of the gorge from the Gardiner Expwy to the northern city limit. The Don Valley also marks the approximate boundary between Toronto City and Scarborough (the actual boundary lies to the east at Victoria Park Ave.).

Crossing the Don Valley, especially near the southern end where the gorge is deepest, requires a significant bridge. And this is what happens on Danforth - probably the most spectacular view in the whole city. It's even nice on the subway, which crosses the same bridge on a lower level. Across the bridge (not yet in Scarborough) is Toronto's vibrant Greek community. Once in Scarborough, Danforth veers northeast so as to parallel the lake. It will eventually take you to Scarborough Town Centre.

My first impression of Scarborough was British. The place is full of typical Toronto bungalows that look very much like typical suburban London bungalows (think Keeping Up Appearances). But in the meantime appearances don't mean much: Scarborough has become one gigantic Chinatown. The predominant language at the corner of Midland and Finch (where I have spent a lot of time) is Chinese. The primary commercial street, Kingston Road (the continuation of the Gardiner Expwy along the lake) is mostly Chinese. Now Chinese are likely a bigger share of commercial life than population, but without a doubt, Scarborough has a large Chinese community. It's very vibrant, and it makes for good food.

The main street of North York, on the other hand, is the 401 expressway. This is the longest expressway in Canada, going from Windsor to Montreal. In Toronto it runs from Pearson Airport in the west through Etobicoke, North York, Scarborough and points east, roughly along Lawrence Ave. On my most recent visits, North York struck me as at best lower middle class – it is definitely the poorest of the six boroughs (at least the bigger ones). Immigrants are from all over: Russia, India, Africa, Latin America, the Caribbean. It is not as lively as Scarborough, but it still has very good food.

I haven't been to Etobicoke since the early eighties. Then it was mostly Italian and solidly middle class. The eastern boundary of the borough is the Humber River, a much less dramatic counterpoint to the Don Valley.

Starting at Bloor and heading north on Yonge, one comes first to St. Clair - about a mile away. Yonge & St. Clair is called Midtown, and is an elegant residential neighborhood. A mile north of St. Clair brings you to Eglinton, which (apart from the expressways) is the major E-W traffic thoroughfare. It is the first street north of Danforth to cross the Don Valley; it spans the entire city from Pearson Airport to eastern Scarborough.

Continuing north puts one in North York - Wilson (which doesn't go through), the 401, Lawrence (a shopping street in North York), Sheppard, Finch and Steeles (the northern city limit). The latter three cross the Don Valley, which is much smaller that far north. All of these are about a mile apart.

Recall the history of Toronto: founded as the cultural capital of British North America, dedicated to British rule, Good Government & Good Order. When I first visited Toronto in the 1970s it lived up to that ideal. Since then the city has become one of immigrants, lots of good food, but not very British. What does that mean for British North America? Is Good Government & Good Order a sufficiently stirring rallying cry to create a civic life from all the ethnic groups? Where is the unum amidst all that pluribus? Canada is betting its future on multiculturalism. They really have no other choice, but will the city maintain its original soul throughout these changes?

Daniel Jelski is Dean of Science & Engineering State University of New York at New Paltz.

GOP Needs Economic Populism

Joel Kotkin — Fri, 30 Oct 2009 08:56:57 -0400

You would think, given the massive dissatisfaction with an economy that guarantees mega-bonuses for the rich and continued high unemployment, that the GOP would smell an opportunity. In my travels around the country — including in midstream places like suburban Kansas City and Kentucky — few, including Democrats, express any faith in the president’s basic economic strategy.

Ask a local mayor or chamber of commerce executive in Kentucky or Kansas City about the stimulus, and at best you get a shrug. Many feel the only people really benefiting from Obamanomics are Wall Street grandees, public employees, subsidized “green” companies and various other professional rent seekers.

It’s not surprising, then, that most Americans — upward of 60 percent — feel the country is headed in the “wrong direction.” Most of these malcontents are not zealots such as those you might find at a tea party. They are more akin to villagers watching in horror as two armies, each fighting in their name, wage war on each other, leaving desolation in their wake.

Yet it’s unlikely that the independent-minded will move to the GOP until the party comes up with a credible economic plan that addresses popular concerns. One big problem lies in the very nature of the Republican Party. Since Theodore Roosevelt, the party has devolved into a de facto shill for large corporate interests. One notable exception, to some extent, was Ronald Reagan, whose rise challenged the hegemony of some in the corporate establishment, first in California, when he was governor, and later nationally.

Republicans may now find it convenient to rail against the Troubled Asset Relief Program, but it’s something many supported under George W. Bush. Even now, most are loath to fight excessive pay and bonuses at places like Goldman Sachs. Instead, it’s populists like North Dakota Democrat Byron Dorgan and Vermont independent Bernie Sanders who seem most outraged by the massive rip-off of taxpayers.

Republicans also do not seem sympathetic to proposals by former Fed chief Paul Volcker and others to break up “too big to fail” banks or reimpose distinctions between investment and mainstream banks. If anything, this illustrates that for all the rhetoric about self-sufficiency and small business, they remain more attuned to Wall Street and K Street than Main Street.

Yet there may be new opportunities for Republicans on the economic front. This winter, the focus of political debate will shift from health care to energy legislation. Whatever the negatives associated with President Barack Obama’s proposals, Republicans’ long-standing inability to reform clearly flawed health care systems has undermined their credibility. The health insurance industry and right-wing ideologues may applaud their efforts, but it’s unlikely to impress the many middle- and working-class Americans for whom the current system is not working.

In sharp contrast, the coming debate over energy and climate plays to the weaknesses of the Democrats. All the administration’s talk of reducing our “addiction” to foreign energy can be painted as fraudulent, since the powerful green lobby will militate against developing our country’s huge natural gas and other fossil-fuel deposits, as well as nuclear power.

In the past election, some of the few good moments for John McCain came in the wake of his embracing a nationalistic, growth-oriented “Drill, baby, drill” agenda. This approach remains popular not only with conservatives but also with moderates and independents, particularly in energy-producing states.

Obama’s climate change proposals offer an additional opportunity. The mainstream media remain slavishly tied to the Al Gore warming thesis, but skepticism toward the anti-carbon jihad is building via the Web. In recent months, Gallup, Pew and Rasmussen have reported reduced enthusiasm for radical steps to battle climate change. Right now, this seems to be a major concern for barely one in three Americans.

Yet the “cap and trade” proposals could prove a boon to some of the very corporate interests — on Wall Street and among utilities — still considered core supporters by some Republicans. GOP leaders seem simply incapable of comprehending the discreet charm that Timothy Geithner’s collusive capitalism holds for many corporate chieftains. In this, they resemble the boyfriend who ignores the implications of finding someone else’s Jockeys on his girlfriend’s bed.

Sadly, those who do tend toward populism, like current front-runners Mike Huckabee and Sarah Palin, appear too socially regressive to appeal to the suburban independents who will decide the elections in 2010 and 2012. Americans may yearn for an economically populist alternative, but not if they think it will bring back the Inquisition.

In the end, economic populism, not social conservatism, can transform Republicans into something other than a scarecrow party. And they could make this strategy work, if they only had a brain.

This article originally appeared at Politico.com.

Healthcare Reform or Health Insurance Bailout?

Susanne Trimbath — Fri, 30 Oct 2009 00:22:49 -0400

What is the real endgame of healthcare debate in Washington? Is it going to be a bailout of the insurance industry as opposed to a plan to provide healthcare for every American? The original jumping off point for this entire debate was that the United States is the only major industrialized country that does not have a national healthcare system. The debate has moved away from “how do you get healthcare” to “how do you get health insurance.”

Even if we accept that the discussion is more properly about reforming insurance than providing healthcare, the debate still focuses on how insurance could be paid for rather than how insurance could be fair. Funny thing is, when Congress voted to bailout the financial institutions, no one asked how they would pay for it. Millions of Americans wrote, emailed, faxed and called their representatives in Washington in opposition to the 2008 bailout. That bill was passed. Yet, with millions of Americans clamoring for healthcare, decades passed with no action. Even now, as we become accustomed to the idea that the federal government will take a stand on how healthcare is paid for – without the government actually paying for it – there are 5 different bills, topping 1,500 pages each, and nothing is even close to being done. George Will told This Week anchor George Stephanopoulos that Congress won’t spend the five minutes it would take to put all five versions of the bill on the internet because then people will know what’s in it – and Congress doesn’t want that. Imagine the hell we-the-voters would rain down on them if we knew what they are up to?

The scariest part of the potential legislation is the notion of creating an “insurance exchange.” It appears the federal government has already forgotten the trouble that these market exchanges create. The requirement that you give your retirement money (IRA, 401k, etc.) to a financial institution to qualify for favorable tax treatment from the IRS may have done more to inflate the stock market (investment exchange) bubble than all the risk-loving financial institution CEOs combined. All that pension and retirement money is the fuel that the financial institutions used to inflate the bubble. The “market exchange” idea did nothing for air pollution. Similarly, it will likely do nothing for improving access to or the cost of healthcare.

All of the Sunday morning talk shows (October 25, 2009) debated the “public option.” This sub-debate apparently holds the political key to getting legislation passed, whether or not enough senators and representatives will vote “yes” that there won’t be a filibuster or a veto. The “public option” comes in three flavors. One version is that health insurance will be mandatory and the government will provide an insurance program at a (presumably) very competitive price to consumers. The second version has an opt-out component: insurance is not mandatory so you could opt-out of coverage even under the government’s insurance program. The third version, known as the “trigger”, would set up a deadline, say two to three years after passage, during which time either the insurance industry will stop abusing policyholders – for example, by canceling your insurance the first time you get sick – or the federal government will enter the industry and provide some real competition. According to John Podesta, President and CEO of the Center for American Progress, the public option is key to getting enough votes to pass this in the Senate. He seems to have forgotten that only the House of Representatives can authorize the federal government to spend money – this is not properly the Senate’s turf.

Cynthia Tucker, of the Atlanta Journal-Constitution, stated it with perfect clarity on ABC’s This Week: The provision of the public option is only a sliver of healthcare reform. It is neither the panacea that the left-wing believes it to be nor the evil plan envisioned by the right-wing. It is all about the 60 votes required to overcome a filibuster in the Senate.

If only it were as simple as right-wing/left-wing, red-state/blue-state divisions. Democratic Senator Russ Feingold told CBS’s Bob Schieffer on Face the Nation that the lack of a public option “would be a serious gap” in any legislation. He spoke forcefully about the need to control abuses by insurance companies. He went so far as to say that the trigger version of the public option would simply give the insurance companies two or three years to manipulate the system to their advantage. “We need to take action now,” Feingold said, to slow insurance company abuse.

Not surprisingly, Feingold was not among the Senators receiving Clusters of Cash from the Health Care lobbyists and their clients in the most recent campaign fundraising cycle, according to the Center for Responsive Politics. That might explain his position – or maybe his position explains the lack of contributions.

Back in October 2008, then Treasury Secretary Paulson advised insurance companies they could qualify for TARP bailout funds. On April 8, 2009, now Treasury Secretary Geithner opened the tap to send TARP funds to insurance companies. One month later, Neal S. Wolin was confirmed by the Senate to serve as the Deputy Secretary to Geithner at Treasury. Until 2008, Wolin worked for The Hartford Financial Services Group, Inc. as President and Chief Operating Officer. On June 12, 2009, Hartford announced that it would receive $3.4 billion under the TARP. Several other insurance companies that applied back in October eventually declined to take TARP money.

If you still don’t see how cozy the insurance industry is with the federal government in that series of events, listen to Bill Moyers explain it on PBS. “Money not only talks, it writes the prescriptions.”

During the summer, I thought the Republicans were opposed to the public option as a Trojan Horse – meant only to move us one step closer to a single payer system that would have the federal government paying for all healthcare. Now that it’s just about the federal government paying for all health insurance, Republicans seem to be favoring it. Wonder who will end up the loser at the end?

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

Yes, Manufacturing Matters

Roger Selbert — Wed, 28 Oct 2009 23:57:06 -0400

Manufacturing employment has fallen below 12 million jobs for the first time since 1941, and manufacturing jobs as a percentage of total employment has fallen below 9%, the lowest level since the Bureau of Labor Statistics started collecting data in 1939. But annual manufacturing output per worker is also at a record high: $223,915 (in constant 2000 dollars). That's almost 3 times as much output per worker as in the early 1970s, and twice as much output per worker compared to the mid-1980s.

That has been the trend over the last 40 years: more output with fewer workers. That’s a good thing, or inevitable, or both – isn’t it? I used to think so; now I’m not so sure.

Reversing Industrial Decline
A recent report by the Lexington Institute spells out the depressing picture: After dominating global industrial activity for a century, the United States is losing its edge in manufacturing to other nations. Over the last 30 years, manufacturing has fallen from a quarter to an eighth of the domestic economy, while the share of manufactured goods consumed in America but produced by foreigners has risen from a tenth to a third. The decline of US manufacturing is reflected in record merchandise trade deficits, the loss of over 40,000 manufacturing jobs every month in the current decade, and the shrinking role of American producers in global industries such as electronics, steel, autos, chemicals and shipbuilding.

US manufacturers continue to generate over 20% of global industrial output and have increased productivity by a third in this decade, but if current trends continue America will cease to be the biggest manufacturing nation in the near future. Many factors have contributed to the slippage in US standing, including high corporate taxes, burdensome regulations, globalization of the economy, and the efforts of trading partners to protect their economies.

If the erosion of US manufacturing persists, America will become more dependent on offshore sources of goods and the nation’s trade balance will weaken. That will undercut the role of the dollar as a reserve currency and diminish US influence around the world, eventually having an adverse impact on our national security. This can’t be a good thing.

China Gains in Manufacturing
China is on its way to surpassing the US as the world's largest manufacturer far sooner than expected. Does that matter? In terms of actual size, the answer is no. But if size is a proxy for the relative health (and prospects) of each nation's economy, the answer could be yes.

The US remains the world’s largest manufactuer. In 2007, the latest year for which data are available, the US accounted for 20% of global manufacturing; China’s share was 12%. The gap, though, is closing rapidly. According to IHS/Global Insight, China will produce more in terms of real value-added by 2015.

US manufacturing is shrinking, shedding jobs and, in the wake of this deep recession, producing and exporting far fewer goods, while China's factories keep expanding. Given the massive trade gap between the two nations and uncertainty in the US over when and to what degree manufacturing will recover, China's ascent has become a point of growing friction.

Many economists argue that the shrinking of US manufacturing – both in terms of jobs and share of gross domestic product – is a normal economic evolution that started long before China emerged as a manufacturing powerhouse. From their point of view, the shrinking would happen regardless and is actually a sign of health: the sector doesn't need to be big to be productive.

To those with this view, China's rise is normal, healthy and beneficial, for it is the natural course of things for national economies to progress along the continuum from agriculture to manufacturing to services. We have trod that path, and now China is following.

But another school of thought, held by "manufacturing fundamentalists,” contends that US manufacturing decline is not natural, healthy or beneficial, and must be reversed to retain America's economic power and well-being. From this perspective, the idea that we can be a nonmanufacturing society – and still be rich, free and independent – is nonsense and folly. Such thinking has led, and will lead, to the collapse of civilizations.

Even in its weakened state, manufacturing remains a surprisingly large part of the US economy. The sector generates more than 13% of the nation's GDP, making it a bigger contributor to the economy than retail trade, finance or the health-care industry. Thus it would be devastating if US manufacturers now being hit by the economic downturn never recover.

Manufacturing Not In Decline
And yet, according to the Cato Institute, notwithstanding the recent recession that has affected all sectors of the economy, US manufacturing has been thriving in recent years. How can this be so? Again, it’s the productivity. Real US manufacturing output has increased by 81% since 1987. American real manufacturing value-added – the market value of manufactured goods, over and above the costs that went into their production – reached a record-high level in 2007.

Manufacturing as a share of gross domestic product peaked in 1953 at about 28% of the economy and has been trending downward ever since. Today manufacturing accounts for about 12% of our services-dominated economy, but manufacturing output and value-added are higher than ever in real terms.

According to the United Nations Industrial Development Organization, US factories are the world’s most productive, accounting for 25% of global manufacturing value-added. By comparison, Chinese factories account for 10.6%.

That may be hard to fathom, says Cato, given that US factories tend not to produce the sporting goods, toys, tools, and clothing found in Wal-Mart and other retail outlets nowadays. But US factories make pharmaceuticals, chemicals, technical textiles, sophisticated components, airplane parts, and other products. American factories have moved up the value chain.

In comparison, the percentage of Chinese value-added in high-tech exports is quite small. Economists at the US International Trade Commission estimate that only about 50% of the value of US imports from China is actually Chinese value-added; the rest is value added in other countries and embedded in the components, design, engineering, and labor.

In iPods, for example, the Chinese value-added is a few dollars on a product that costs $150 to produce and retails for $299. Further, their sale in the United States and elsewhere supports high-paying American engineering, marketing, and logistics jobs, while providing Apple with the profits to conduct R&D to employ more engineers and keep the virtuous circle going. Without complementary Chinese and other foreign labor, far fewer American manufacturing ideas would come to fruition.

American manufacturing is therefore not in decline, right?

The Plight of American Manufacturing
No, that’s not right, and yes, manufacturing is in decline, and therefore so is America. That’s the case strongly made in Manufacturing A Better Future for America, published by Alliance for American Manufacturing.

The United States is broke because it has stopped producing what it consumes, writes the book’s editor, Richard McCormack, who is also the editor and publisher of Manufacturing & Technology News. Even an increase in consumer demand, he notes, will not put Americans back to work as the spending will only help workers making products overseas.

About 40,000 US manufacturing plants closed between 2001 and 2008, resulting in the loss of millions of good-paying jobs, according to AAM. Offshoring of production means that the United States is not generating enough wealth to pay its mounting and massive debts. The mindset among America’s economic elite – that the country does not need an industrial base – has put the country and the world economy in a ditch.

The book refutes some widely promoted myths, including that the US economy can thrive with just service industries as good-paying jobs are replaced by other sectors. It also debunks the notion that lost manufacturing plants will not mean lost research and development. It details the unfair trading practices China employs, and explains the social costs of the decline in manufacturing.

It is often said our economic future is dependent on innovation and/or job training. These factors are supported most strongly in manufacturing.

Conclusion
You can see why I have developed doubts that the diminishing of a manufacturing base and loss of manufacturing jobs are natural, inevitable, or good for the United States and its citizenry. A post-industrial economy does not obviate the need for industry. A large and rising value of intangible goods does not obviate the need for the production of tangible things. And a “new economy” does not obviate the need for a manufacturing base.

Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

Report from Orlando: The Spirit Rocks On

rreep — Wed, 28 Oct 2009 00:28:35 -0400

By Richard Reep

“In hard times, people turn to God or alcohol” jokes Bud Johnson of Constructwire, a database that tracks planning and construction projects nationwide. Johnson, 50, is an industry veteran and has never seen a recession like this in his career. “This is an exceptionally broad-based downturn,” he says, “and Orlando has been hit harder than most in the South, what with your only real industries being housing and tourism.” Both industries have been trapped like mammoths in a glacier as the credit market stays stubbornly frozen in a modern banking Ice Age.

At the bottom of the glacier, however, the meltwater continues to flow, and bars and liquor stores seem to be thriving. With 10 new ABC stores open this year, this privately held Orlando-based liquor retailer is doing just fine, enabling many of us to stay sane, if not sober, while waiting for The Recovery. The alchoholic spirits are not the only mood-shifting business doing well in these hard times. Sacred space may not be exactly booming, but religious buildings are being built at a more comfortable pace than nearly any other building type in Central Florida.

“Ecclesiastical architecture is falling at a rate close to that of a paper airplane, while my other building types have the glide ratio of a rock,” says Peter Kosinski, the architect responsible for the renovation of St. James Cathedral in downtown Orlando. With most other projects on hold, including a share of churches, Kosinski Architecture has still seen most of his religious work proceed, despite the Great Recession. Funding largely comes from donations, and for secular not-for-profits cultural outfits like United Arts, giving has evaporated. Spiritual needs, however, seem to be drawing a steady stream of money to expand or add to temples, churches, synagogues, and other sacred spaces to meet a growing demand in the Central Florida area.

If the credit Ice Age is a part of a great karmatic rebalancing, it was long overdue and has hit especially hard in our overheated, consumer-driven culture. The cynics, who knew the cost of everything and the value of nothing, drove sacred space largely underground as new subdivisions engorged Orlando with not a square inch reserved for community worship. Religious uses simply don’t fit the profit model of late capitalism, and while our older neighborhoods are dotted with small, walk-to churches, not a cross can be found in the landscape of most newer developments. To the development industry, collective religious worship represents someone else’s unprofitable land sale.

Cobbling together 15 or 20 acres therefore became a new art form for many evangelical pastors as the late 20th century saw the rise of the megachurch. These huge, Sunday-traffic-nightmares offer sophisticated audio/visual Christian themed entertainment in an arena setting, a perfect way for many to fulfill their spiritual needs. Others, stuck in these vast residential tracts devoid of sacred space, use the house-church method, gathering in groups of 8 or 10 at a member’s residence, taking heart in what Pope Gregory the Great (an early leader) stated: “The real altar of God is the mind and the heart of the just.” And some do both.

Either way, the religious needs of the people of Central Florida are expanding, and the sanctuaries, temples, synagogues, and mosques are noticeably busier. The 2-year-old Guang Ming Temple, housing the local Renzai Humanist Buddhists, is experiencing a surge in attendance locally. Temple Director Chueh Fan confirms that there is a strong need for a communal spiritual facility. “We feel the hardship of people right now,” she states. “Although the Asian community here is stable, we have been growing over the last 2 years. And we are a middle-sized temple; there are some much bigger in other states.” Guang Ming offers Dharma classes in Spanish, English, Vietnamese and Chinese, and class enrolment is growing quickly.

Other clerics, such as Reverend Reginald Dunston, also see a need for more religious-based education, and are planning new schools as well as sanctuaries. “Agape Word Ministry is planning a bible-based school,” he explains, “as an alternative to the schools in the area.” Other pastors, such as Jeff Cox of Salem Lutheran Church in Bay Hill, agree that it is important to expand their offerings to include a religious-based education. Education is the one tangible asset that a community is willing to purchase from a house of worship, and while most religions in America struggle for relevance, their schools remain in demand.

Christianity, exploding in a pluralism not seen since the Reformation, is especially sensitive to its status as the dominant American religion. While over 4,000 new churches open nationwide annually, another 3,700 close, according to David T. Olson in his 2008 book “The American Church in Crisis.” This is near status quo, despite population growth, suggesting a shift away from collective religious worship for many. Hispanics, traditionally more observant, are building megachurches at a far faster clip than non-Hispanics, pointing to a loss of interest in collective Christianity for the majority of the population.

Locally then, the house of worship is entering a phase of experimentation as new forms, such as megachurches, are tried; it is discarded altogether by the house-church movement; and it is growing in some religions such as Buddhism, with their new temple, and Judaism, with the construction of the new JCC South Campus on Apopka Vineland Road. The mainline Christian denominations that dominate downtown’s skyline serve less and less as a model for new buildings as malls are repurposed, warehouse buildings are adapted, and more novel programs and designs are tried.

Hindu, Jain, and Muslim traditions are also represented in Orlando, and generally playing to full houses. The Masjid Al-Haqq mosque on West Central Boulevard on a Friday afternoon was brimming full, with more worshippers arriving by car and by foot. Collective spiritual worship of all forms is clearly a rising force within Orlando, and space on pews, benches, chairs and prayer mats are at a premium.

Missing from many lives, crucial to others, religion is at an odd crossing in Central Florida’s history. To balance empty pocketbooks, some people are filling their cups with booze but others are also imbibing a perhaps long-delayed return to spirituality. This return, however, is marked by a mosaic of multiple religions, rather than a return to the few mainstream denominations that characterized early Orlando’s growth. If Bud Johnson is right, and this surge in spirituality lasts through The Recovery, Orlando will see a boom in new religious architecture that might make up for lost time, creating a revival in sacred space in the Central Florida landscape.

Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

Let Freedom Ring: Democracy and Prosperity are Inextricably Linked

Joel Kotkin — Tue, 27 Oct 2009 00:28:49 -0400

With autocratic states like China and Russia looking poised for economic recovery, it's often hard to make the case for ideals such as democracy and rule of law. To some, like Martin Jacques, author of When China Rules, autocrats seem destined to rule the world economy.

A columnist for the Guardian, Jacques predicted that by 2050 China will easily surpass America economically, militarily and politically. The belief in the power of autocracy even extends to such leading American capitalists as Warren Buffett and Bill Gates, who have nothing but high praise for what Gates enthusiastically describes as a "brand-new form of capitalism."

Fortunately a new study released Monday by my colleagues at the Legatum Institute refutes the notion that the road to worldly riches lies in autocracy and repression. In a careful study of everything from economic opportunity, education and health to security, freedom of expression and societal contentment, the Legatum "Prosperity Index" makes a powerful case for the long-term benefits of democracy, free speech and the rule of law.

Some of this stems from how Legatum measures prosperity. The survey takes into account both wealth and well-being, and finds that the most prosperous nations in the world are not necessarily those that just have a high GDP, but that also have happy, healthy, free citizens.

The top of the list, which ranks 104 countries, is dominated by flourishing democracies. The only exception in the top 20 is No. 18's Hong Kong, which ranks first in economic fundamentals and continues to be ruled, if not quite democratically, under a far more permissive system than the rest of mainland China. The next semi-autocratic state on the list is Singapore, at No. 23 – another Confucian-style autocracy with great economic and human capital fundamentals.

This linking of democracy and prosperity with well-being is by far the most significant aspect of the study. But what else determines the success of nations in the modern world?

1. Small democracies do best.

The denizens of the Greek city-states or their Renaissance counterparts would have recognized something of themselves in the small, well-managed countries that dominate the top of the list. The top five, Finland, Switzerland, Sweden, Denmark and Norway – as well as the Netherlands at No. 8 – certainly fit this description. These countries rank highly on the quality of life measurements, and, not surprisingly, their main cities also tend to dominate the most-livable-cities lists. With the exception of Switzerland and the Netherlands, these places do not perform as well in terms of basic economics, scoring between 10th and 18th. Although some might ascribe these rankings to successful social democratic policies, virtually all these mini-states have instated significant market-oriented reforms in recent years.

Other top players Australia (No. 6) and Canada (No. 7) are far larger than their European rivals. And though their citizens are not as socially coddled as in Scandinavia, they enjoy strong democratic institutions, high levels of social well-being and good governance and education.

And in purely economic terms Australia and Canada boast better economic fundamentals than the Scandinavian countries. One reason may be their enormous stockpiles of natural resources, now in high demand from countries like China and India. These countries also benefit by a large and often skilled migration from these and other Asian countries.

2. Among the mega-countries, the U.S. is still way ahead

Don't cry for me, America. In terms of the large countries, both in population and size, no one comes close to the No. 9-ranked U.S. Indeed there's not another country with over 100 million people on the list until you get to Japan at No. 16.

Like all big countries, America is a complicated place, with distinct areas of strength as well as disturbing weaknesses. The U.S. leads all countries in entrepreneurship and innovation and ranks second in the stability of its democratic institutions – the Swiss are No. 1. Less than optimal health and safety rankings, however, push America from the top. Its economic fundamentals are also sub-prime, ranking only 14th, which isn't surprising in light of persistent current account and now government deficits.

Despite its problems, the U.S. still outperforms its other large rivals, not only Japan but also the U.K. (No. 12), Germany (No. 14) and France (No. 17). Yet judged within the ranks, all four of these economies have to be considered successful in terms of delivering prosperity and a reasonably high quality of life to their citizens.

3. Breaking down the BRICs

The Index's most fascinating findings can be found a bit further down. The focus of the world's economy has been shifting to countries that have been – and in some cases remain – governed by Communist, military or single-party dictatorships.

Democracy's efficacy can be seen clearly in success enjoyed by the former European Communist states – the Czech Republic, Poland, Latvia, Estonia, Slovakia and Hungary – all of which land in the first third of the ratings. Similarly, Taiwan (ranked 24th) and South Korea (26th), long ruled by military-dominated dictatorships, show how democratization and rising prosperity can flourish together.

This pattern can also be seen among the "big boys" of the economic upstarts – the so-called BRIC countries. Here the leaders of the pack are both functioning democracies, Brazil (No. 41) and India (No. 45). These rapidly growing economies are kept out of the top tier by significant shortcomings in vital fields such as education, health and public safety.

The other two BRIC powers, China and Russia, neither of which can be considered anything close to open societies, lag behind. Russia's mineral wealth gets it a respectable 39th in economic fundamentals, but a lack of democracy, personal freedom and personal safety – as well as poor governance and corruption – drags it down to a paltry 69th. China, ranked a disappointing No. 75, also performs admirably on economic fundamentals, clocking in at No. 29, but is hammered for glaring shortfalls in democracy, personal freedom and governance as well as health and education.

4. Autocracy may seem to pay, but not in the long run

Throughout modern history, autocracy has proved effective in sparking fast growth, but a pervasive democratic deficit, poor governance and lack of personal freedom seem likely to constrain long-term progress. For one thing, the ruling elite in the dictatorship is under no strong compulsion to adjust to the needs of its population. Short of forestalling outright rebellion, nest-feathering tends to gain the upper hand.

As you get to the bottom of the list, the price of dictatorship rises higher still. In this nether-region, there is nary a democratic state. Some of the low-ranking Third World countries are obvious – like Cameroon (No. 100) or Yemen (No. 101) – but some potentially rich but despotically ruled nations do poorly as well.

Take, for example, No. 94 Iran, a country with enormous natural resources, a well-educated population and a rich cultural heritage. A reasonably enlightened Iran would likely sit in the top third of the list instead of skipping toward the bottom.

Even the bottom-ranked country, Zimbabwe, left its colonial period with a thriving agriculture sector and great mineral wealth. Here again despotic rule has shown itself an adept destroyer of economic promise.

In these times of acute self-doubt not only in America but across the democratic world, the Legatum ratings validate the idea that if democracy is not the inevitable wave of the future it represents by far the most efficient way to manage a society. In the end, democracy and prosperity prove not two distinct elements, but, in fact, inextricably linked to each other.

This article originally appeared at Forbes.com.

Executive Bonuses: The Junta In The Boardroom

Matthew Stevenson — Sun, 25 Oct 2009 23:38:02 -0400

Public companies and their management boards are run with all the democratic coziness of banana republics. The object of the junta is to transfer the wealth of the shareholders into the bonuses and stock options of the management. As they used to say in China, “business is better than working.”

Amidst the outcry over excessive executive pay, it is worth noting that, in the caudillo management culture of many public corporations, there is nothing more annoying than a shareholder with an interest in the company that he or she partly owns. The most dreaded corporate day of the year is that of the annual meeting, when outside consultants are hired to screen bothersome questions and choreograph the happy gathering.

During the meeting itself the greatest scorn is reserved for nosy shareholder questions about executive compensation and board composition, neither of which is deemed to be in the sphere of shareholder influence.

The annual meeting ends with the appointment of outside auditors, a few planted questions, and — for those meetings held at some remote subsidiary, to keep activist shareholders from showing up — a trip to a regional airport.

Archaic company by-laws explain why it will be nearly impossible for various regulators to cap the amounts that companies pay to executives. In short, the shareholders work for the managers, not the other way around. (If Goldman Sachs has so much extra cash, why don’t they raise the dividend?)

Start with board composition, which is usually the domain of one executive: the chairman and chief executive officer. In a functioning system of corporate governance, the jobs would be separate. Chief executives would not also be assigned the job of monitoring their own performance, which is now the case in most public U.S. companies. Good European companies have a supervisory board, which oversees the performance and pay of the senior management.

In the U.S., not only do foxes run the chicken coops, they get to eat most of the eggs and then write off the meals on their expense accounts.

Most chairmen/CEOs stack their board and compensation committees with party-line stalwarts, who vote in favor of excessive pay packages in the hope that the recipient or one of his friends will not forget the favor. To break such a back-scratching system should be relatively easy, especially in companies regulated by the Securities and Exchange Commission. Simply mandate that management cannot sit on its own board of directors.

Cumulative voting or proportional representation of the shareholders is another way to start breaking the management oligopoly of board composition. Board seats could also be allocated to representatives of retired personnel (who built the company) and those who now work in the company.

Another way to limit excessive pay packages is to impose a binding ratio that caps executive pay based on the compensation of the company’s lowest paid workers. At the moment, CEOs in big public companies have packages that pay them more than a thousand times that of their employees’ lowest wages.

J.P. Morgan thought the boss should only be paid twenty times the salary of the average company employee. Such an idea might not cap fat cat bonuses, but it would certainly improve the minimum wage.

How then to claw back executive pay when the big bosses bet the ranch on something like sub-prime mortgages and lose?

For starters, boards independent of management self-interest will be less forgiving when executives ruin a company or even turn in mediocre results. That so few banking executives were fired after the Great Collapse of 2008 is testament to the lack of shareholder representation on most boards of directors. Who fires the CEO when he reports to himself?

Next, mandate that incentive compensation like stock options only be paid into segregated retirement accounts, which ought to align performance with long-term success.

In financial services, the reward for failure should be just that: failure. In the recent crisis, deposed chairmen and chief executives were marched into the sunset with multi-million dollar severance packages. Remember the $64 million sayonara given to Citigroup’s Charles Prince, about the time the company’s shares lost $275 billion in market capitalization?

A side affect of the government bailouts was to comfort bad managers. But while these corporate executives were pinning medals on their own chests (very much in the tradition of Latin strongmen), the reason given for the sweetheart loans, especially to banks, was to protect depositors. Under this variation of mutual assured destruction, financial institutions with a large depositor base can never be put to the wall, which gives them an effective government guarantee.

To replace this kind of dependence on bankers who can gamble with deposits without consequences, there needs to be a mechanism that will protect depositors while allowing the larger financial companies to fail.

For example, depositors could be given the option of buying deposit insurance — privately funded insurance, unlike that offered by the Federal Deposit Insurance Corporation — much in the way that air travelers buy accident insurance. That the FDIC caps out at $100,000 is neither here nor there. Under this scheme, insurance would be available for all amounts, large and small. It would be paid for in the market, not given as a government gift.

When customers deposited money somewhere, they would decide if they wanted to insure the deposit or not. Those that wanted coverage would pay for it. Those that wanted to reply on their bank’s full faith and credit would leave their money uninsured and hope they have not found the next Lehman Brothers.

Publishing rates on deposit insurance, much like posted interest rates, would be yet another indicator of a company’s financial health, much like the credit default swaps that are traded in institutional markets.

The goal is to alert customers to good banks and bad ones, and to make clear that the bad ones will be allowed to fail, which is nature’s way of telling executives that they are overpaid.

My last modest proposal is to encourage reconstituted boards of directors to auction off the positions of senior management.

At the moment, managers justify their self-worth with a lot of encomiums about how big salaries and bonuses are necessary to insure that “we get the best people.”

From what I can see, all that the big salaries insure is that companies keep a lot of mediocre executives, many of whom, judging by recent performance, then spend their time buying wine and sprucing up their vacation homes. Remember what was said, in Henry Ehrlich’s book of business quotations, about the compensation policies of Harold Geneen at ITT: “He’s got them by their limousines.”

Under my revised system, top executives would be required to show the board that they have, in writing, a comparable offer from a competing firm (baseball works like this). As well, under the auction system, boards could entertain bids by senior executives to fulfill the roles of senior management.

Clearly, chief executives have a good time in their corporate jets and swank hotel suites, which might lower what other senior managers would need every month to handle the top jobs.

My guess is that a number of competent executives could be found willing to do the jobs of Fortune 500 CEOs, and for a lot less than what the current occupants charge the companies for their services (the average is over $10 million). Something tells me that Citigroup could have found a CEO for less than the $38 million that it paid to Vikram Pandit in 2008. Maybe it should have looked on eBay?

Matthew Stevenson was born in New York, but has lived in Switzerland since 1991. He is the author of, among other books, Letters of Transit: Essays on Travel, History, Politics, and Family Life Abroad. His most recent book is An April Across America. In addition to their availability on Amazon, they can be ordered at Odysseus Books, or located toll-free at 1-800-345-6665. He may be contacted at matthewstevenson@sunrise.ch.

Property Owners Pay for City’s Dysfunction Under L.A.’s New Graffiti Ordinance

Jerry Sullivan — Sat, 24 Oct 2009 23:04:46 -0400

Graffiti is a bane of urban life, a form of vandalism that demoralizes entire neighborhoods and invites worse crime.

Graffiti is an art form and an outlet for expression amid the jumble and obvious strains of urban life.

You’ll hear arguments from both of those viewpoints, depending on who you talk to about graffiti.

The Garment & Citizen is of the firm opinion that anyone is free to consider graffiti an art form – but all should be mindful that such status doesn’t give anyone the right to express themselves by painting, etching or otherwise tagging someone else’s property. Pablo Picasso himself would not have had any right to create his “Guernica” on the side of someone else’s building, as far as we’re concerned.

It would have been a loss to the world, of course, if Picasso had gone through life with no canvass for his genius. The world needs Picassos, and it’s important to remember that such talent sometimes grows on tough corners.

It would be an ideal situation if we had a school system that could consistently engage such talented individuals…and parents with the time to nurture youngsters inclined toward art...and an overall outlook as a society that values art as something more than a commodity to be marketed.

We’re lacking to some degree or another on each of those counts.

Consider what goes on before some kid decides to emblazon graffiti on someone else’s property.

First, there’s been some breakdown in the family unit. Sometimes it’s a parent or parents who don’t care enough to warn their children off such behavior. Other times they are too busy trying to feed and clothe their kids, leaving little time to teach them right from wrong.

You can bet that many cases also involve a school that has failed to engage and educate the youngster.

There’s probably a lack of after-school resources, too, leaving kids to find camaraderie with mischief makers while their parents are still working.

All of these factors come into play on graffiti in our city. They all point to the dysfunction that has found a cozy spot in Los Angeles for decades.

We live in a city where the minimum wage is $8 an hour, which will bring $320 for a 40-hour week – hardly enough for rent. Is it any wonder that folks at the bottom end of the pay scale might have to spend more time working and fewer hours on their child’s upbringing?

Everyone knows that the drop-out rates at Los Angeles Unified School District (LAUSD) campuses are sky high in general, and higher still as you move down the socio-economic ladder. Yet not much ever changes when it comes to expectations of how well the organization teaches our children.

Then there’s the Los Angeles Police Department (LAPD), which recently came close to a roster of 10,000 officers, the highest mark in the agency’s history. Compare that to other major cities in the U.S. and you’ll see that we still don’t have enough cops. We have never had enough cops. And now there’s talk of trimming staffing levels for LAPD because the city is short on money.

These are the pillars of the dysfunction that we have lived with for years in Los Angeles. How does a city go so far down a path of ignoring all these problems and allowing the ground for graffiti vandals to grow so fertile?

Look no further than City Hall. That’s where members of the City Council recently passed an ordinance that will require any new commercial or residential buildings to include anti-graffiti coatings on the structures. The only exception comes if a property owner signs a lifetime contract to remove any graffiti within a week.

There you have it – this problem rolls downhill. Failure upon failure leads to the doors of property owners. They must, under the ordinance, join city officials in giving up on any thoughts about directly addressing graffiti vandalism. They must, our elected officials say, pay good money to prepare to be vandalized.

The new ordinance is one way to raise revenue, but it also raises a white flag of surrender – a de facto confirmation that our elected officials lack the governmental skill and political will to face up to graffiti vandals and address the various factors behind the crime.

That’s a dictionary definition of dysfunction – and it passed the Los Angeles City Council unanimously.

Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

Fixing the Mortgage Mess: Why Treasury’s Efforts at both Ends of the Spectrum Are Failing

Peter Smirniotopoulos — Fri, 23 Oct 2009 23:37:09 -0400

To get a better idea why the Obama Administration’s efforts to stem the home foreclosure crisis have failed at both ends of the problem, you need only go back to that great scene in Frank Capra’s classic, “It’s A Wonderful Life,” where protagonist George Bailey (Jimmy Stewart) is on his way out of Bedford Falls with his new bride and high school crush, the former Meg Hatch (Donna Reed). The newlyweds are heading toward the train station to leave on their honeymoon when Meg notices a commotion outside the Bailey Bros. Building & Loan Association, founded by George’s revered but now deceased father, Henry, and Henry’s bumbling brother, Billie.

The “commotion” is actually a run on the bank. George – bless his heart, and with the full encouragement of the new Mrs. Bailey – hops out of Ernie’s cab to see if he can quell the growing crowd assembling outside the locked doors of the Building & Loan. With his usual calm George assesses the situation, asks Uncle Billie to unlock the doors to let the gathering mob into the Building & Loan, and then proceeds to talk (most of) them out of closing their accounts and being refunded the value of their shares.

George patiently explains to his anxious Association members that he can’t give each of them 100% of the value of their Bailey Brothers Building & Loan Association shares because the funds from those shares have already been loaned out to worthy borrowers so they can afford to build or buy houses in the community. States George from behind the teller counter:

“…you’re thinking of this place all wrong. As if I had the money back in a safe. The, the moneys not here. Well, your money’s in Joe’s house…that’s right next to yours. And in the Kennedy’s House, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay you back as best they can. Now what are you going do? Foreclose on them?”

Just as George appears to be making progress, however, a now former Association member comes running into the Building & Loan pronouncing that Old Man Potter (Lionel Barrymore), who owns the bank and every other business in Bedford Falls, is offering to buy Bailey Brothers Building & Loan shares at 50 cents on the dollar (in an obvious effort to take advantage of the situation by running George Bailey out of business). Saving the day, and confirming that George has indeed made a life-changing decision in his choice of mates, the new Mrs. Bailey, with $2,000 in cash in her purse for their honeymoon, offers the money to the anxious Association members filling the building lobby. George then adroitly parses out their honeymoon money in the smallest increments he can persuade folks to accept under the circumstances.

The scene tells us much about what went wrong with the residential real estate market nationwide. It is more than merely nostalgic to long for such elegant simplicity in the manner in which deposited funds were invested in things such as home mortgages. However, the only thing quainter than that scene in “It’s a Wonderful Life” is the idea of a bank or other financial institution originating, owning, and servicing the same mortgage. And therein lies the rub for efforts by the Treasury Department to help right the residential mortgage ship of state through the Making Home Affordable mortgage modification program and the Legacy Asset Recovery program.

The root the problem lies with the complete disconnect between those who actually own the notes secured by the vast majority of residential mortgages in this country and those who “service ” those mortgages. Right now there is little if any incentive for those servicers to participate in the Treasury Department’s mortgage modification initiative (the Making Home Affordable mortgage modification program or “MHAP”), originally projected to foster the modification of 2.5 million mortgages but having resulted in only a fraction of that number in modified mortgages. This is at least in part because the fee structure under the existing servicing agreements does not adequately compensate the servicer for the amount of effort required to accomplish a mortgage modification. Further, there’s no clearly and easily identifiable “owner” of the notes that are secured by the underlying mortgages putting pressure on the servicers to modify these mortgage

The national mega-banks that have received the lion’s share of Treasury’s multi-trillion bail-out of the banking industry have been, by far, the worst offenders in not embracing and implementing this program. And the problem can’t easily be fixed because it is structural in nature, the by-product of a system ironically intended to keep credit flowing into the residential sales market. For example, in Treasury’s recently released Servicer Performance Report through September 2009, Bank of America had modified under the MHAP only 11% of its approximately 876,000 home mortgages delinquent by 60 days or more (thereby making them eligible for modification under MHAP).

The structural problems prevail at the investor-end of this morass as well. After much Congressional rhetoric and even more Wall Street teeth-gnashing over mark-to-market legislation late in 2008 that would have forced the holders of mortgage-backed securities (“MBS”) to mark down the value of their mortgage loan portfolios based on reductions in the underlying collateral value, Congress declined to take such action. The Legacy Asset Recovery program (so-called by Treasury because, quite honestly, who wants to invest in “toxic” assets), the investment component of Treasury’s Public-Private Investment Program or “PPIP,” pairs private capital with Treasury capital and then makes up the difference with federal low-cost debt. This program is intended to mitigate potential risks and rewards for these new equity participants by halving the amount of private equity that must be raised (since half of the total equity is provided by the government) and providing all of the required debt. As with any program whose purpose is to encourage private investments in bad debts – recalling the RTC program from the early 90s – potential profit is directly correlated to discounting the Legacy Asset purchasing entity can achieve in negotiations with the MBS holders.

Regrettably, the assumptions underpinning the theory quickly prove not to be reasonable. At its core, the problem is that, in order for this initiative to work, the MBS holders need to do that one thing they’ve absolutely refused to do thus far: Take any losses.

MBS holders are betting on their ability to hold onto their mortgage pools for as long as it takes for the excess housing inventory in the marketplace to get absorbed. They are also waiting for the end of the recession (perhaps around the corner but perhaps not) to turn into a full-fledged economic recovery, so that underlying real estate values start to catch up to portfolio values.

Will this strategy work? Likely not if there’s a slow, largely jobless recovery that doesn’t support the housing market. As of now, the most recent projections for economic recovery in the real estate sector are looking to 2013. In the meantime, Treasury’s programs at both ends of the mortgage crisis will have done very little to stem foreclosures or stabilize capital flows to the housing market.

Compounding the structural infirmities of these two “recovery” programs is that job growth is most likely to come first in states that have relatively few problems (Washington, D.C.-Metro Area; Great Plains; Texas) and will be far slower in many of the most troubled states, notably California, Michigan and Ohio, and parts of the Northeast. Hindsight being 20/20, rather than focusing so much attention and so many resources on helping the financial industry, which has been by far the largest recipient of Washington’s largess, the focus should have been on job preservation and job creation. The links, after all, between mortgage performance, housing values, and employment are undeniable.

Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.