TCS Daily

Economies as Ecosystems

By Charles Matthew Rousseaux - December 7, 2004 12:00 AM

"He who plants a tree / Plants a hope."

-- Poet Lucy Larcom

Are economies ecosystems? The parallels are striking.

The energy driving ecosystems ultimately comes from the sun, while the energy driving economies ultimately comes from another boundless of energy source -- human imagination and innovation. Inspired individuals -- energetic, enthusiastic, and perhaps just a bit sun-struck -- plant their seeds of innovation, creating new products and starting new companies. Those seeds are fragile at first. Many fail, crushed by competition, starved by high costs or strangled by burdensome regulations.

But, under the right conditions, like those described in the Milken Institute's recently released Best Performing Cities Index, innovators and entrepreneurs can create thriving business ecosystems and bustling, prosperous communities.

The annual report ranks cities according to overall economic output. Growth of wages and jobs and salaries is factored in, as is technology output growth. To smooth short-term economic bumps, the study also factors in average growth over the previous five years.

The study does more than designate which cities are doing better than others; it literally describes what works and what does not. It shows where individuals and industries are choosing to plant.

Unsurprisingly, citizens and seeds both prefer places with relatively open land, clear skies and a lot of sun. Florida had seven cities among the top 20 performers, including the Fort Meyers-Cape Coral area, which topped this year's survey. Las Vegas was the second-best performer for the second year in a row. In fact, sixteen of the top 20 cities were in the South and West, and the other four were along the Eastern Seaboard.

But there's more top performance than sunshine and sea breeze. As the study noted, "Over the long haul, the key to regional stability is the diversity of its ecosystem." Diversity allows cities to withstand the shocks of sector downturns and recessions. Diversity also assists the process of constant renewal and rebirth, essential to the thriving of both economic and biological ecosystems.

What factors keep economies fertile? Fast-growing companies are one critical component. Many of the best performing cities were located in metro areas with high levels of entrepreneurial activity. The Midwest lacks national leaders in both categories. As the study suggested, "Over the long-term, cities with strength in entrepreneurship will be among our Best Performing cities."

Access to capital is important, although low interest rates have made funds fairly easy to obtain. Regions with more human capital, in the form of skilled workers, will tend to adapt better to structural changes in sectors of the economy than regions with less. Rapid access to new knowledge and new innovations will also reinvigorate regions, and can be a critical factor in keeping them competitive in the knowledge-based economy.

Intellectual capital is not, by itself, sufficient to produce thriving economic ecosystems. As the Milken study noted, somewhat to its surprise, "None of the top 20 research universities are located in any of the top 20 best performing cities." That finding might simply be due to the way that employment and wage outputs were emphasized in the study, since a region's long-term competitiveness seems at least partially dependent on a strong knowledge-based economy.

Regions need growth in other sectors as well. Many of the best performing cities were strong in the service sector. Tourism was important in regional growth (while fun to imagine, a "Disneyland Detroit" is not likely to be much of a draw), as was home construction.

The aging population is having an effect on regional development and that is likely to continue. Demographically speaking, the fastest growing part of the population (by percentage) is that over 85.

The snowbirds that flock to sun-drenched states bring their bank accounts with them. Those older birds (who seem to flock together) call on younger bucks for medical care and meals. For instance, Lee Memorial Health is the top employer of the top-performing Fort Myers-Cape Coral area. Those younger professionals need housing and schools, creating more demand and more growth.

The Milken study considered the largest cities as a separate class since, "Metro areas in their mature stage with little land available for expansion and high density, face difficulty recording job growth as rapidly as metros in their early-and mid-stage growth cycles." Few of the largest cities performed exceptionally well, and the only metropolis to crack the top 20 best performers was the Washington D.C.-MD-VA-WV area.

An unspoken subtext in all of this are the amazing accomplishments that free market capitalism makes possible in even poorer performing cities. As economist Thomas Sowell noted in his recently published book, "Applied Economics," "Considering what a monumental task it is to supply tons of food every day to a city the size of London or New York," (New York City ranked 169th overall on the Milken list) "It is remarkable that we take it for granted that such a task is performed without anyone's being in charge of seeing that it all gets done."

In his book, "Eco-Economy," Lester Brown of World Watch Institute argued that the economy should be restructured around ecological principles. Yet that seems to happen naturally in free-market economies -- diversity, sustainability and prosperity arising from ingenuity and entrepreneurship. While Axl Rose and Upton Sinclair style jungles can occur, so can thriving economic ecosystems.

Thanks to the free market, sun-struck, and perhaps sunburned individuals can take their passion, and, in the words of Irene Cara, "make it happen," producing profitable products and adding to the prosperity of communities. The Milken study shows the potential, and the factors that make it possible. Thriving seeds of human ingenuity: What a feeling indeed.

Charles Rousseaux is the speechwriter for Interior Secretary Gale Norton. The sunny views expressed are his own.


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