BLOG: Above the "Flat" World

JK:
First I want to compliment you on actually being concerned about Portland’s economy, something that seems to have escaped the city council’s attention for many years.

Sam:
Of course, I read it looking for insight into how I can help make our Portland Vancouver region more completive in the cutthroat global economy.

This book reinforced a couple of my earlier notions of what we need to be doing locally:

• Compared to other regions around the world, we are hayseeds when it comes to paying attention to basic economic diagnostics, much less setting economic goals and working together – business, education and government – get achieve the goals.
JK:
I suggest that it is too early to set goals. First you must find out what the problem is (Define the problem.) Why are businesses leaving and not coming? Ask those that left, why they left and those that recently came if they would repeat the experience (Brainstorm reported that Addadis would NOT have come to Portland if they realized the crap that the city would put them through. Also don’t miss the part of the same article that describes the city planners finally approving a design for the ticket booth for a river boat after several iterations with one final request - that they remove that funny looking crap in the background. That crap was the Hawthorne bridge.) Sam, we have to get rid of 90% of the planners before Portland will be safe for ordinary people and business. Also remember that some of Portland’s best and most desirable inner neighborhoods were build WITHOUT ZONING (and probably without city planners looking over the builders shoulder, running up costs.)

We also have to quit pushing business out like the planners tried to do in the St. Johns plan by zoning a number of businesses as non-conforming uses. Have you noticed that we are replacing family wage businesses, that, reportedly, pay more than their fair share of taxes, with high density housing that, reportedly, pays LESS than their fair share of taxes (even before the abatements) and little shops that probably pay minimum wage? This city policy must be reversed.

Sam:
When India went from a closed centrally planned economy to a market based economy, they built string public private partnership (as in collaboration not central control) that set market-propelled goals and a way to track progress or not.
JK:
What do you want to bet India would do even better if the Government butted out and just let it happen by ensuring a level playing field with the very best schools, legal system and transpiration network that they can afford.

Sam:
Us?

With the exception of our work around industry clusters, we have rudimentary economic “to do” lists we call economic strategies and few actual, accountable economic goals.

It’s like if we set for sail from Portland to Honolulu with a map that says, “Find Hawaii, and make sure to bring a boat without holes in it, bring food, keep the wind is at your back unless it is blowing the wrong way.”
JK:
Beware of detailed plans. Detailed planning is impossible to get right. Planning 40 years out, like Metro’s 2040 plan, is laughable. Except that they seem to take it seriously.

Do you realize that a 40 year planning horizon would have required the planners to plan for the first freeway (1939) about 10 years BEFORE the motor care became in general use (Ford, circa 190x). That planning horizon is pure BS and quit destructive as well as wasteful of high paid planners time.

Sam:
• Promote local “insourcing”: Build on our standing as a good rail, truck, marine and air port city. Freidman writes that Louisville Kentucky has worked with United Parcel Service to locate sixty companies around the UPS hub that perform subcontracting work for UPS to its clients.

For example, Hewlett Packard contracts through UPS that in turn subcontracts with local Louisville companies to fix HP laptops. HP actually never handles their own laptops in need of fixing.
JK:
Forgive me if I have said this too many times: IT IS IMPOSSIBLE TO PICK WINNERS. If it was possibly, business would have a perfect track record. They don’t. And government is even worse, because they make decisions based on politics instead of sound business practices. You are hearing of the success stories, they don’t talk of the failures. Find real data on the success/failure rates of picking winners if possible.

My favorite story is of Japan picking heavy industry, after WWII, to be the winner that would lead them to recovery. They imposed rigid controls on the export of money. Little upstart Sony tried to get permission to purchase a license from Bell Labs to produce transistors. It took a couple of years. Still they managed to be second on the market with a transistor radio - the consumer high tech of the late 50's. Without government interference they probably would have been FIRST. Government picking the wrong winner probably prevented Sony form being first in the world with a transistor radio.

Why do we think Portland can do better?

Sam:
We build a lot of component-only products; building on the f act we have one of their biggest import docks here, earlier this year I tried in vain to get the PDC to make a pitch for bringing a the Toyota Hybrid assembly plant to Portland.
JK:
1. What is a component only product?
2. Any particular reason that PDC heads didn’t roll? Or were they too busy at management classes? (Can’t we just put that agency out of its misery?)

JK:
• We need to constantly upgrade the skills of all our workers. The workers in the cities who know how to learn and adapt the best will be the winners in the global economy.

JK:
Agreed, but Sam answer this: why would one locate a multi-billion dollar semiconductor plant in some third world country instead of Beaverton? Every time I ask that I get told it’s the low labor cost. Why would you staff a multi billion dollar plant with illiterates? Doesn’t make sense to me. There must be a deeper answer, perhaps the total cost of doing business? This is one of the first questions that I would want to get answered before setting up a monitoring system.

SAM:
On that last issue, Freidman’s book also gives me additional dimensions to think about when doing business/job recruitment and retention work. He discusses how different types of jobs are more or less vulnerable to overseas outsourcing.
He states that there are four broad categories of workers:

• The “special.”

Workers who are special are like Michael Jordan and Bill Gates. “They have a global market for their goods and can command global-sized pay packages.”
JK:
Of course Tektronix was started in Portland and moved to Beaverton where it started the high tech boom. I have no knowledge of why they moved. We could guess.

SAM:
• The “specialized.”

“If you cannot be special – only a few people can – you want to specialized, so that your work cannot be outsourced.

This applies to all sorts of knowledge workers – from specialized lawyers, accountants and
JK:
I have heard radio ads for accountants that DO NOT outsource their work to foreign countries, implying that accounting is being outsourced now. Also lawyers and accountants are basically service workers to successful businesses and who ultimately depend on a manufacturing economy to thrive (or increasingly complex regulations to wade through and muck up everything).
SAM:
brain surgeons,
JK:
People are traveling to India (and Mexico) for operations now.
SAM:
to cutting edge computer architects and engineers to
JK:
This is just a matter of time, if it isn’t happening already. I do know that computer programming is being outsourced now. Why not? There is no inherent barrier short of education, of which we are getting worse and “they” are getting better.
SAM:
advanced machine tool and robot operators.”
JK:
Advanced machine tools are just an exercise in good design and manufacturing - there is no inherent barrier other than education and imagination (and a market). Those countries that do machine tools and robots will eventually catch up. To the extent that we are only talking about operators of these machines, the machines will need something to work on - IE: manufactured goods to sell to bring money into Portland.

SAM:
Freidman writes that these skills “are always in high demand and are not ‘fungible’…work that cannot be easily digitized and transferred to lower-wage locations.”
JK:
I disagree - all that stuff will be outsourced. I think this guy has it all wrong except about some of the location specific stuff below.

My take is that once a market is identified, many different places can make the goods. The key is successfully identifying the market. And low cost manufacturing. We have to work on the latter.

BTW: Manufacturing and design are more closely linked than many appreciate. In the long term, we cannot design here and manufacture overseas - it loses the information feedback loop from the factory to the designer (for higher tech items, might be OK for shoes is sweatshops.)

SAM:
• The “anchored.”

“…everyone from the barber, to the waitress, to the plumber…their jobs must be done at a specific location…they are not fungible…”
JK:
These are essentially service jobs and cannot exist without someone earning money from outside to pay them. We cannot live by serving dinners to each other.

Many of these jobs are disappearing anyway - look at what McDonalds did for waitresses and well paid cooks.

Barbers are vulnerable to ever advancing home tools, earlier examples being the disposable razor, beard trimmers and home haircut kits. All of these are eroding barber’s market. Do not expect stability in this field either.

Maybe plumbers, but we have lost other repair industries:
* TV repair shops have all but disappeared as TVs have become so cheap as to be disposable.
* Cars are more reliable and more computerized so they require less service overall.
* Custom software is still thriving, but more capable off the shelf stuff is probably cutting into that niche.
* Even Microsoft is facing competition from free software. (Good riddance if MS bites the big one)

Since the advent of the steam engine, the only constant has been change, at an ever increasing rate. It is time that government recognized this by loosening its stranglehold on the economy. Hell, PDOT just recently realized that trucks are important. They had previously only looked at bikes and pedestrians (I actually have video of this!!!!). I have heard that PDOT has more recently realized that private cars actually carry commerce too. Hell, some day they may even realize that private cars carry workers to work, because mass transit takes too long and is too uncomfortable.

SAM:
• And the workers who are “really adaptable.”

Freidman states, “You want to constantly acquire news skills, knowledge and expertise that enable you to constantly to able to create value…knowing how to ‘learn to learn” will be one of the most important assets any work can have, because job churn will come faster, because innovation will happen faster.”
JK:
1. Now he is getting it. Of course everyone, in the rest of the world already knows this.
2. Once again our crappy schools will haunt us.
3. Rigid government regulations already are screwing us:
* Cascade station recently had to be re-zoned to attempt to attract business after the first round of restrictive zoning failed miserable (and MAX still stops at those empty stations out there!!) Why didn’t they just let anyone do anything there? (OK no pig farms)
* Then there is Colombia Sportswear - did we ever fix the underlying problem that drove them out? Or the underlying problems that drove them out still driving other businesses out?
* Companies that I deal with that have left town include: Pacific Metal, Radar Electric and Multicraft Plastics. Find out why each of these (and others) left and FIX THE PROBLEM.

SAM:
The airplane cabin lights are coming on for breakfast so I’ll sign off for now. Next blog entry will be from Melbourne Australia.

JK:
Are you able to send internet from the aircraft?

Thanks
JK

Mr JK - Don't expect too much Sam/none of his staff have had a job where profit was a motive, much less an evil influence. The idea of anything occuring without central control is an alien concept to these people.

Jim,

Good dialogue on this entry. Thanks. I agree with your comments about needing to understand the problems of business before setting goals. That’s one reason why I visited 100 businesses in the first days of my term and continue to do so. It’s also why I’ve been working at Portland’s most common and lowest paying jobs to understand the issue from the worker’s point of view as well. From this effort I helped recruit a business, Assurity NW, into your neighborhood, Lents.

Until the 2040 plan, I want to see business success and individual and family prosperity goals that have significant support from both business, labor and government. Regarding your comment about business picking winners: I see it as part, getting the winners to pick Portland, but mostly helping our local winners stay and grow here. Progress has been made since losing Columbia Sportwear and putting Adidas though hell, but, yes, we still have lots of work to do to remove unnecessary barriers to desirable development in Portland. I keep at it.

I missed you at the East Portland stormwater discount meeting. I was counting on you to tape it.

Sam

Steve,

I suspect it is comments like yours is the reason more elected officials don't have blogs. You entry is stupid and after I scanned the staff bios, inaccurate. You are one arrogant dude.

Tim

Sam,

I imagine I got on your list as a result of conversations with the wonderful folks at Sisters of the Road to do a narrative analysis on the stories they collected from their clients.

I appreciate this blog thread about your trip to Australia and what you're seeing about what our area needs. I just returned from a week in Sydney myself, speaking on my coaching research at a national conference. I have been invited to return to present on my work on narrative coaching and stories/public policy. I loved Australia and agree we have much we can learn.

You may want to connect with Jeff Tryens, former head of Oregon's Progress Board, who has taken on a similar role in Adeleide for awhile.

Keep up the good work. I may see you as part of the work we're doing with the City on management/supervision training this winter.

David

My comments are probably too late to be read, but here goes anyway. I read the book on my way to (and in) China. I think it is a "must read" but a lot of the reviewers didn't read it very closely. Tom makes it clear at the outset that his ideas are not "fully baked" and he reinforces that point in the final section (which is one of the most thought provoking). Moreover, he is using his economist background in his "voice," so when he talks about "flat" he doesn't mean in a social sense. That said, the book is a modern day "Wealth of Nations" that says most of the basis Western nations (especially the US) have used to excell economicially are being undermined, not just by technologies that have "flattened" the means of production across political boundaries, but by the "CEO class" who are the ones outsourcing not just the jobs, but the capital investment that used to say at home. Read that last line again! The "enemy" isn't low wage workers in China, it is the CEO who builds them a new plant to work in that will make them as productive as a US worker so those low wages pay off. That CEO could invest in modern factories in the US and employ US workers, but as Tom points out, they don't want to pay for health care and the social benefits US workers expect. In other words, the CEO Class is destroying the US economy, not third world workers.
I take that as a given in a "flat" economic world. But the correlary is that "wealth" will no longer accrue to those who Marx said "own the means of production" because production is now footloose and up for the lowest bid. So were will wealth be captured? In services, yes, but "Real" wealth will be captured by "branding." This is good news for Portland if it can cultivate and retain the "creatives." Unfortunately, chasing after more manufacturing and service related employers to locate here is inherently a losing strategy - in the long run (and I am not opposed to winning short run strategies if it is understood that they are NOT long run ones).
As an economist, Tom overlooked (or more likely didn't have space to deal with) two powerful trends that work against our foreign competitors. The first is the aging of the population globally. Almost all nations face a graying population that will demand more services and wealth than will be reasonably available. Of the major nations, the US faces the least risk from this trend (at least demographically, if the CEO Class and Republicans get their way with Social Security we will self-destruct as well). The second threat is the increase of "feminine" power. With the exception of Western economic powers, there is a notable loss of girls in the birth statistics as those cultures (Asian, Islamic, hard core Catholic, etc.) favor males over females. Contrary to what you would think, this gives the remaining woman MORE rather than less power because there will be more competition for them among males. Pretty clearly, these woman will use this power to react to the centuries of oppression they have faced in ways that will likely depart significantly from the current "business as usual." This may have very significant impact in combination with the aging population, as you could expect women to be more sensitive to the plight of the elderly (most of whom will also be women) than men (who given a me versus them choice will probably choose "me").
Thanks to the "Greater Generation" that aggitated in teh 1960s and 70s for social reforms, the US won't have these problems as we are not discriminating against the birth of female children and are more supportive of women's equality than most of our competitor nations. Again, Portland stands out in this regard because it has one of the nation's largest rates of female headed businesses and new female business formation.
The challenge I see, is, like Sam, in articulating a very long term vision (running to 2050) and cretaing the right environment for POrtland to benefit from the trends that will begin to overpower current trends and worries 10-20 years from now. For those who think a 40-year horizon is too long, I ask, then why do you (mostly conservative, Republican, anti-planning types) insist on a 20-year supply of land inside the Urban Growth Boundary? If you are at all honest, you will say you favor the traditional, "capitalism is smarter than any of us," just muddle along approach. But that won't cut it in the face of demographic trends, which are "destiny" in a popular phrase.