All Economies Are Global (And Local)

By Robert Bell

In case you haven’t been keeping track, the current list of global trends that threaten life as we know it includes:

  • Mass corporate invasion of your life – at your invitation – with just one goal: to make you click on more digital content that inflames your fears
    and stimulates your desires …
  • Slowing economic growth led by China at the same time that nation is pushing out the most aggressive foreign policy in its history…
  • Strong growth in political parties that trade on fear and hatred of everyone not like themselves, and that are masters of social media…
  • Oh, and Boris Johnson was just named Prime Minister by 1% of the British people, and You Know Who with the Orange Hair is still in the White House.

I write as an American to the people of this blessed continent that has known 27 years of uninterrupted economic growth and, according to The Economist, defies economic orthodoxy by paying the highest minimum wage in the industrialized world. Good on you. Out here in the rest of the world, the waters have been choppier. Today, as Australia’s legendary growth slows, according to the statistics bureau, it’s a good time to be reminded about the mega- trends that threaten us. All are global. Yet most have their greatest impact in the place you call home. In the end, all economies are local, even if global change stands behind the curtain like the Great and Powerful Wizard of Oz.

That mass invasion of our privacy is brought to you by a handful of global tech giants that have transformed how we connect, relate, work, play, govern, learn, raise our kids and worship. Across the nations, we are waking up to the unintended global problems they bring us, from creepy surveillance and online shaming to election fraud and ethnic violence. But here’s the thing. Do you own anything that is more personal, that you are never without, than your smartphone? The intersection between local and global is literally in the palm of your hand.

THE FUTURE OF WORK

The McKinsey Global Institute recently published one of their amazing econometric studies titled “The Future of Work in America.” The Executive Summary makes good reading no matter what country you live in, for the trends it forecasts will soon be at your doorstep.

The study applies national-level predictions about the impacts of increased automation and machine intelligence on people in a wide range of ages, ethnicities and skill levels. It also correlates these with where people live. McKinsey analyzed 3,000 US counties and 315 cities based on factors like household income, economic growth, employment growth, net migration, poverty rate, age and educational attainment. Here are the conclusions that matter for local economic development:

  • By 2030, 60% of all job growth could be concentrated in 25 “high-growth hubs” and “megacities” that are currently home to 40% of the population. These are the superstar cities where talent and money cluster, feeding the fire of technology innovation.
  • Outside these high-growth zones, McKinsey identified a middle tier of cities and counties with good prospects. They are “periphery cities,” meaning that they are within the economic zone of much bigger cities that help drive their economies. An example is Arlington, Virginia, on the border of Washington DC, which won the Amazon HQ2 competition. There are also “niche cities” that have developed successful technology, advanced manufacturing and other growth clusters, and “college-centric towns,” where academia helps drive innovation. There are “silver cities,” which have been lucky enough to become places where retirees gather, bringing their pensions with them. This middle tier has achieved average GDP and employment growth only slightly lower than the superstars.
  • Trailing the pack are cities and counties that have lost old industries and never found an adequate replacement, where too few people are well-educated, that lack infrastructure and employment and where people are suffering “diseases of despair” from addiction to suicide. Here, the GDP growth rate averaged 0.75 percent from 2012 to 2017 and employment growth averaged 0.2 percent.

America is a land of extremes compared to most peer nations. But in my research and travels, I have seen the same pattern in nation after nation. Having universal health care, public pensions and income support can keep people from destitution. But not having a job, not having a purpose in your life, is devastating for almost everyone. It is clear that the rural and remote regions of our nations today face some of the biggest challenges in their history.

WHERE MACHINE MEETS HUMAN

Two years ago, McKinsey did a great analysis about the potential impact of the next wave of automation on the workplace. Instead of scary headlines about everyone losing their jobs and going on universal basic income, they forecast that only a small number of occupations would actually vanish as a result of machine learning. They predicted instead that 60 percent of all jobs would have at least 30 percent of their more repetitive tasks automated. Sewing machine operators do almost nothing but repetitive tasks, and their jobs are definitely at risk once we figure out how to make a machine that can handle cloth as well as a human hand. Psychiatrists and legislators – a match made in heaven, if ever there was one – do almost no repetitive work and their jobs, for better or worse, are safe. And even as some jobs decline, the economy will create more in completely new occupations – like my personal favorite, people whose job it will be to explain to us mere mortals why artificial intelligence algorithms are doing what they do.

McKinsey’s newest study takes that fundamental data and applies it to the very different conditionsand potential of these city types. The dangers they see include:

  • The hollowing out of middle-wage jobs, which have a relatively high percentage of tasks that can be automated. Think stock clerks, bookkeepers, cashiers, administrative assistance and retail salespeople.
  • The least-educated workers are most likely to be displaced by machines. Low educational attainment is one reason that rural areas are doing so poorly. Young workers will also find it harder to enter the workforce as low-skill, entry-level jobs decline in number. McKinsey predicts that some 14.7 million of them in the US are in highly automatable jobs. And older workers in the decade before retirement will find, if they are pushed out, far fewer opportunities to return to work. There are 11.5 million of them currently at risk.
  • Disproportionate impact on racial minorities and recent immigrants, because they tend to have lower educational attainment than the mainstream population. In the US, Hispanic workers are over-represented in food service jobs and have the highest rate of potential job loss, at 25.5 percent, of any American minority group.

WHAT TO DO

Forecasts are forecasts, not to be confused with reality. There are economists who assert, with good reason, that the productivity unleashed by machine learning will give a welcome jolt to economic growth, because productivity gains have always done that. Given the diverging paths of these different city types, however, the challenge for economic developers is that the rising tide may only lift some boats.

The McKinsey study dramatizes something that my organization, the Intelligent Community Forum, has been observing for decades. How high your boat floats certainly has to do with geography, with history and with sheer luck. But it also has everything to do with the choices that the people of a community have made and continue to make.

In the McKinsey study, that middle tier of peripheral, niche, college-centric and silver towns point the way. Except for the silver cities – where some combination of sun, geography, amenities and reasonable living costs have made them a retirement magnet – the middle tier of cities have made their own destinies. Arlington, Virginia used to be a city of used car lots and discount warehouse stores, a place you went to, shopped and left as soon as you could. It was transformed over decades by two forces. The first was female: the wives of diplomatic personnel and military staff who settled in Arlington in the late Forties and Fifties, before women has many opportunities to work outside the home. These were educated and accomplished women, and they began organizing. A culture arose of community groups pushing for improvements in this or that, getting their neighbors to care and driving decisions by City Council. That culture has carried forward to the present day. The other force was the willingness to seize opportunity. In the late Sixties, Washington decided to build a metro system to serve the city and reach into its suburbs. The county and city governments of Arlington planned and lobbied hard to have the metro run through the county and have stops in the center of its towns. The success of that policy created the Arlington of today: a set of urban islands that grew up around the metro stops, surrounded by leafy suburbs, parks and walking and bicycle trails. High quality of life, great transportation and a culture of engagement have attracted a highly educated workforce, advanced digital infrastructure, great schools and all the other factors that make a place successful today.

Over and over again, we see the same story play out. Communities that understand how the world is changing, and have the courage to adapt rather than deny it, succeed. Their physical geography is far less important than the geography between their ears. They apply principles that we have codified as the ICF Method to build a better future: to build digital infrastructure, create a workforce with skills and knowledge, and foster a local ecosystem of innovation, usually around institutions of higher learning. They also care for the community in new ways: they work on digital inclusion, on driving citizen engagement through traditional and digital channels, and making sustainability not just a popular cause but a path to more engagement and the jobs of the future.

What the McKinsey study told me was that the price for not taking these steps is rising every year. Some places are already primed to benefit in the coming age of machine learning. The big city model of concentrating people, money and learning has been working for 3,000 years. It is no golden ticket – lots of big cities are horrific messes of disfunction. But it definitely provides an upper hand in today’s economy.

The exciting thing happening today is that the same economic dynamism, social strength and cultural richness found in many of the world’s major cities is now available to much smaller places located far from the limelight. The internet may be helping to power the rise of superstar cities – but it is also the technology that annihilates distance,  brings buyers and sellers together regardless of location, and ships valuable “cargo” consisting only of bits and bytes. That enables the smaller and more remote places of the world to punch far above their weight. They face some of the greatest challenges but also have global opportunities that were never in reach before. They just have to work harder than bigger places to take advantage of them.

PUTTING NBN TO WORK

Armidale, a town of 25,000 people in New South Wales, was the first mainland city in Australia to be connected to NBN and experience the impact of fiber speeds to the premise. That was an impressive achievement for a small city 200 km inland from Australia’s east coast.

It wasn’t just luck. Getting to that point required substantial planning, lobbying and the creation of community-wide collaboration. In 2011, Armidale formed the Digital Economy Implementation Group with representatives from city, state and Federal governments, local technology firms, the local university and technical school, the chamber of commerce and community ambassadors. Through community education and facilitation, the group got the attention of NBN, submitted its proposal and won. It turned out to be a good choice: Armidale helped NBN achieve an 80% connection rate to commercial and residential properties.

NBN has allowed Armidale to build a business community that might be expected of a much larger and more central place. It includes WhiteHack, a network security company; RMTek, a cloud services provider to industrial and mining facilities; Quadrant Australia, developer of special interest group travel programs; and Enertek, which brokers green energy solutions. The local school system and university Smart Farm are enthusiastic adopters as well, because of high-speed broadband’s ability to bring to Armidale the best of what the world has to offer.

City leaders were determined that NBN make a major contribution to the local economy and quality of life. Like many cities to follow, Armidale established a Digital Hub providing hands-on access to technology as well as free technology courses, technical advice and digital literacy training. A complementary Digital Enterprise program focused on the small-to-medium enterprise sector with workshops and customized training. Thousands of people have received training at the Digital Hub, and Digital Enterprise sessions have attracted hundreds of local business people. One company benefiting from the technology focus was ICT International. With the city’s help, it won a
grant for business expansion and development of a new water-measuring technology that can estimate the total amount of water available in a watershed. The company is now exporting to 45 countries, something only possible with high-quality digital connections.

Community engagement is fundamental to the city’s progress. A community-owned composting system called City to Soil has diverted 60% of municipal waste from the landfill and produces high-quality compost that is sold back to the community. Residential take-up was high enough, at 75%, that Armidale introduced a commercial version of the service. The city also engaged the community deeply in development of its 20-year master plan through a communications program called CREATE 2350. The program posted potential development projects to its Web site and invited comment and suggestions from residents. One example was a proposed A$50 million Airport Precinct Master Plan, which became the subject of online exchange and meetings with Council at locations around Armidale.

By 2025, Armidale will have been a fiber-based community for a decade. It will be the original Australian test case for how small cities in rural locations can build dynamic economies while preserving the quality of life their people treasure.

FIBERS THAT BIND

The NBN deployment has disappointed many, as ambitious visions have given way to budget cuts and changes of strategy. But the waves of technology change will not be stopped. More vital than fiber to the home are the fibers that bind the community together – the collaboration among local government, business, education and other partners that builds the skilled workforce and the ecosystem of innovation that let the place called home prosper in tumultuous times. Tech is powerful. But like the phone in your hand, it is no substitute for getting on with the business of life.

About the Author

Robert Bell is co-founder of the Intelligent Community Forum, a global network of cities and regions with a think tank at its center. Through this network, ICF researches how communities use digital technology to grow their economies, societies and cultures and give the place called home a sustainable, prosperous future in an age of digital disruption. Australian communities honored by ICF’s international award program include Adelaide, Armidale, Ballarat, Coffs Harbour, Gold Coast City, Ipswich, Melbourne, Prospect, Sunshine Coast and Whittlesea. In 2017, Melbourne was named ICF’s Intelligent Community of the Year. www.intelligentcommunity.org