I found this book by accident…doing some kind of a Google search it popped up somehow. I was immediately sucked in because the book uses my hometown of Flint, Michigan as a foil for places like Seattle, Silicon Valley, and Austin, Texas. As you can probably guess Flint doesn’t come out well.
As the nation struggles mightily with unemployment and jobs creation, few are talking about the real causes of this upheaval. The books author Enrico Moretti is one of the few who, I think, has actually diagnosed the problem correctly. He says, “It wasn’t supposed to be this way. As the global economy shifted from manufacturing to innovation, geography was supposed to matter less. But the pundits were wrong. A new map is being drawn – the inevitable result of deep-seated but rarely discussed economic forces.”
The book explores why places like San Jose, Austin, and Seattle have continued to add jobs and employers, while plac- es like Flint, Detroit, and Seattle have largely gone to seed. He examines why a city 45 minutes from Flint-Ann Arbor- has had success in attracting employers, where Flint has not. However, this is not a book about Flint…or Michigan…or politics. Rather it’s an exploration of the root causes of what makes a city, state, or re- gion economically viable, and ultimately financially successful.
Morettti is an economist, researcher, and Professor of Economics at the University of California at Berkley. He provides a fact-based answer to the question of why certain cities attract top employers, pay top wages, and continue to innovate and create new jobs and opportunities. The book does an excellent job in providing the answers to those, and other important questions.
The reality is that there are opportunities in small pockets all over the country, but primarily in areas Moretti calls ‘Innovation Hubs’. These areas are where excellent jobs and pay are at for almost everybody, from scientists, engineers, programmers and researchers, to doctors, mechanics, carpenters, plumbers, attorneys, and yes, even for Financial Advisors!
The innovation hub is driven by a phenomenon Moretti calls the multiplier effect. He estimates that for every innovation job that is added, another five jobs are added in the local service economy. He notes also, that innovation jobs have double the multiplier effect that manufacturing jobs do. What’s more, because innovation jobs are typically much higher paying, the service jobs pay more, too.
For denizens of Michgan we shouldn’t be too shocked at this revelation because it used to be us. A quick look at a Polk Directory from the early 20th century finds men like General Motors founder Billy Durant, General Motors Chairman and philanthropist extraordinaire Charles Stewart Mott, Albert Champion (A.C. Sparkplugs), David Buick, Louis Chvrolet, and Walter Chrysler all living within walk- ing distance of one another. This proximity drove innovation in ways that rewrote the economic face of America. The same thing happened more than half a century later in a place that came to be known as Silicon Valley, and again in Seattle when Bill Gates and Paul Allen moved their fledgling company called Microsoft, from New Mexico to their hometown. Steven Jobs and Steve Wozniak benefitted just as mightily from this multiplier effect, as did Starbucks founder, Howard Schultz, and Durant (and Henry Ford in Detroit) before them.
Moretti points out the startling fact that Flint has not increased it’s percentage of college graduates one single percentage point since 1980, and commensurately a college graduate in Genesee County can expect to earn less than a high school graduate in Austin, Texas or Silicone Valley!
Moretti puts it into perspective: “Compare Boston..with Flint…both have a proud industrial past, but their econo- mies are now at the opposite ends of the spectrum. Boston, with four times the number of college graduates is heavily dependent on innovation and finance. Flint with one of the smallest concentrations of human capital is still focused on manufacturing, primarily cars. A college graduate in Boston makes on average $75,173, or 75% more than the salary of a similar worker in Flint.
Moretti stresses the economic disparity: “Possibly the most remarkable fact is that high school graduates (of the top cities) often make more than the college graduates of the bottom cities. The average worker with a high school education living in Boston makes $62, 423, or 44% more than a college graduate in Flint. A high school graduate in San Jose earns an average of $68,009. This underscores the fact that wage disparities in the United States have as much to do with geography as they do social class.”
His book is in many ways a blue print to revitalizing the Rust Belt, and creating opportunity where things are stifled. I think his work is critical from a financial planning perspective, as well. When it comes to planning your career, helping your kids or grandkids plan theirs, or re-engineering your career knowing where to build your business and career can matter as much as what you do.