Saturday, June 12, 2010

Innovation is Irrelevant, Part 2

One of the biggest misconceptions in economic development is that cities must show themselves to be "cool" and "innovative" to attract workers and employers. But there is no data to back any of this up, unless you consider position in a magazine ranking more important than unemployment rate.

Many Plains metro regions, from Fargo to Sioux City, have well-below average rates of unemployment. One reason is their connection to agriculture. While hundreds of cities, counties, and states chase after a trickle of biotech and greentech jobs, places that never really moved beyond agriculture into industrial manufacturing are doing better than those crossing their fingers that their taxpayer giveaway will win that 80 person biotech lab.

Like manufacturing, agricultural employment continues to get squeezed by productivity gains and automation. But unlike traditional manufacturing, the U.S. runs a trade surplus in agricultural goods, exporting over $100 billion worth of grains, dairy, poultry, and livestock a year. This keeps the wealth here, and more importantly, continues to make the Plains the world's leading center of agriculture much as Silicon Valley is for semiconductor design. South Dakota, whose leading export is processed foods, is home to some of the lowest metro unemployment rates in the country. And unlike coastal cities, Plains cities' low costs of living prevent massive income disparities from developing.

Being in a region that runs trade surpluses, and is home to large exporters makes the larger cities more attractive to immigrants. 15% of Minneapolis residents were born outside the U.S., compared to just 4% of Cleveland residents. Minnesota's biggest exporter, Cargill, is in the exciting business of exporting grains for feeding livestock, hardly the sort of activity that will get Duluth on Fortune's next "Hot 20 cities for singles" listing.

Rather than chasing after some solar panel factory that will be competing with similar facilities in Malaysia and the Philippines, it makes more sense for regions, especially those off the coasts, to target under-appreciated industries that run trade surpluses.


  1. Fargo happens to be where Great Plains Software was founded. It is now owned by Microsoft and Fargo is Microsoft's second largest engineering center outside Redmond. They employ over 1000 in Fargo, which is huge in a city of only around 100,000 people. Also, North Dakota is booming because of oil/energy, which is good for them, but has little to do with public policy and much to do with the luck of geography. So it's not a good example for agriculture.

  2. Great Plains Software was financed by the owner mortgaging the family grain elevator.

    Moreover, North Dakota exports $8,000 worth of agricultural commodities per resident per year. In the exciting industry of feed grains, its exports quintupled from 2004 to 2008. Its soybean exports tripled over the same period.

    Its oil production is going up, but South Dakota has similarly low unemployment rates, in spite of producing very little oil.

    U.S. ag exports rose from $62 billion in 2004 to $115 billion in 2008, and have been essential to the Plains states maintaining economic stability not seen in any many other areas. Industries like ag that run trade surpluses are far more sustainable to regional economic development than those itching to be outsourced, which includes the "hot" sector of solar panel manufacturing.