Monday, December 14, 2009

Attracting "Knowledge" Workers is a Bad Strategy

One of the most prominent trends among cities over the last 15 years has been the push to recruit educated workers by promoting lifestyle benefits. And it only grew stronger in 2002 when Richard Florida came out with his book “The Rise of the Creative Class”. Often spending taxpayer dollars to do so, cities have been falling all over themselves to attract "knowledge" workers. How successful have they been?

Boring Industries vs. Exciting People

One challenge of promoting educated labor to educated management is that no employer ever asks for workers with skills in “knowledge”, rather they need electrical engineers, mechanical engineers, industrial robotics specialists, etc.. Yet many cities don't have much technical understanding themselves, and get panicky about falling behind in a rapidly emerging area. And somehow they think loft apartments near coffee shops, with the obligatory four letter neighborhood name – NoDo, LoDo, SoMa – will make them popular with top employers by showcasing their ability to entertain the bright people firms want to hire. But these image makeovers are like a girl in high school changing her makeup routine hoping to impress the popular kids.

Hopefully we've already seen the worst after Michigan's horribly embarrassing and ineffective "Cool Cities" campaign. But the fundamental issue persists – economic development must be distinctive, and all the cities with successful records of attracting skilled workers established themselves as centers for a particular industry before they tried to market their live music scenes, artists lofts, or started renaming neighborhoods. In successful economic development stories, from Seattle to San Jose to Texas, “cool” industries all existed before there was any attempt to attract “cool” people, and before 55 year old economic development executives started saying “cool” in business meetings.

Specifically, the problem with marketing yourself to “knowledge workers” is that every city needs web developers, LAN managers, and basic IT staff. Software developers will always be demanded by non-technology companies investing in IT, so these people are present in your city regardless of which types of companies you recruit, or how many clubs you have downtown. As I pointed out last week, Boston, the leading medical science region in the country, currently has four times as many openings for people with SQL skills than it does for those with biotech expertise.

Make Sure You Can Touch the Product Before Giving the Company a Tax Break

More important than the typical mix of web designers and software developers available in every city are hardware skills, which are far less common. Hardware industries are far more clustered, and require specialized abilities in design and equipment operation, not just Java or C++ skills you can get in any city.

Hardware also forces a target company's suppliers to do business in a region, and not everything can be shipped. Toyota's Tundra plant in San Antonio has 18 suppliers on-site. One reason why San Antonio has fared better than other regions in the recession is manufacturing workers, not knowledge workers.

The ability to rope in a supply chain is another major benefit of hardware, which you don't get with software, biotech, or any “knowledge” industry based purely on people. Moreover, as time passes, most hardware industries diverge into multiple industries, and the remaining suppliers need to stay put because they depend on local talent. Within the semiconductor industry, for example, very few new companies are building their own fabs, or manufacturing plants. But even fabless chip companies, who design chips but don't manufacture them, are mostly based in Silicon Valley, Orange County, and Austin, where there were already predecessor companies. These regions got a new industry simply though evolution, not active recruitment. But in software, there is no manufacturing to outsource, or supply chain that can be broken apart.


Silicon Valley also got the solar design industry simply out of the fact that most solar panels use the same materials as semiconductors. Similarly, unexpected benefits from byproducts can only spring up when there is some kind of raw material being put to use. Corning, NY's expertise with glass led to new product areas like fiber optics, composite materials that are going to new aircraft like the 787, and to materials for wind turbine rotors.

Hard products force your city to adapt or die far more than if you rely on the same health care, software, and showcase biotech projects as everyone else. Many Michigan union leaders have been more focused on whining about foreign competition that's lept ahead of them, than they have been at creating future trends themselves. Seattle, which also also sits in a heavily unionized state, is instead focusing on future products, rather than pointing fingers at politicians or foreigners for the passage of time. When Detroit native Bill Boeing decided to make his jets in Seattle, he might have picked up on its futuristic spirit 80 years ago.

New Products are More Important than New People

Whether its cars, chips, or jets, manufacturing opens up tremendous opportunities for future industries, and brings in a supply chain of additional companies you don't get when you become yet another city with a 300 person biotech lab. Hard goods are still the basis of any sound economic development strategy, because they can't be turned into sophisticated products without people. Recruiting new people, but not new products, will only give your employers a me too selection of web developers and software programmers available in any city.

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