By Barbara S. Rolleston, Ph.D.
Professor of Economics and Core Curriculum Director
Regional economies are the engines that power national economic growth. True to the adage that "the whole is the sum of the parts," the "action" is in our country's regional economies, where innovation is the key to success.
There is a chain of causation that requires cities to focus on innovation:
Innovation -> Productivity Regional Economic Growth ->National Economic Growth
Can Cleveland be a player? Or is our older, manufacturing-based city just a "brick-and-mortar snapshot of a bygone era - a crumbling monument to the Industrial Age," as suggested nearly 25 years ago by a panel on the future of cities (Panel on Policies and Prospects)?
The answer is that Cleveland can and must be a player; it cannot afford not to be. But players of today's game must recognize that the rules have changed. Cleveland gained its historic comparative edge via its location, but the drivers of business location are not what they used to be. Companies' location decisions are no longer driven by access to natural resources or even by access to markets, and transportation costs are generally falling as a share of business costs.
Instead, access to information, to a skilled labor force and to urban "amenities" are driving factors determining business location. Access to information creates "knowledge spillovers" that are critical in fostering innovation and productivity growth. So is a skilled labor force. Companies and their workers are increasingly drawn to those places that rank high on urban amenities - a measure that in and of itself can constitute a source of growth for regional economies.
Today's firms are often described as "footloose," as a result of both globalization and technology. Mass manufacturing has been replaced by advanced manufacturing and advanced services. Cities are no longer "incredible job machines" for waves of unskilled workers. Often in the past these workers were immigrants for whom cities served as launching pads for economic advancement and rising standards of living.
This doesn't mean there is no place for manufacturing in cities, but manufacturers that thrive in the "new economy" will be those that can innovate in product, process, marketing and distribution. And cities and regions that thrive in the "new economy" are those that can attract and retain innovative businesses, and can attract, retain and train or retrain the workforce that today's employers require.
Innovative economies are those that use information to enhance productivity and raise income levels, local tax revenues and the quality of public services in a "virtuous" cycle of regional economic growth. Innovative economies are those that generate information "spillovers" that attract new business development to enlarge the cycle of growth.
We know that Cleveland has suffered declines in both employment and population since its heyday of industrial might. Between 1960 and 2000, the City of Cleveland's population fell by 45%, one of the largest declines in the country. Northeast Ohio population is growing, but more slowly than the U.S. as a whole, as is employment. Northeast Ohio has become much more diversified in its employment base than in the past, but still is substantially more concentrated in manufacturing than average for the U.S. Further, Northeast Ohio lost 22% of its manufacturing employment between 1980 and 2000, which had the effect of dampening overall employment growth, in spite of significant growth in service employment (Gottlieb).
Yet Cleveland has tremendous potential to build on its competitive strengths, which include a number of industry clusters. In these clusters, a strong knowledge base, information spillovers and technology transfer, by fostering innovation and productivity, can serve as magnets for new business start-ups and for relocations. These clusters include the metalworking, plastic products and chemicals, motor vehicles and equipment, and insurance industries. Emerging industries which offer Cleveland significant growth opportunities include the biomedical field and instruments and controls (Northeast Ohio).
As we look at our future, we need to learn from our past. Boosters once claimed that Cleveland was the "Best Location in the Nation." But our strengths have always gone beyond geography - access to resources and markets - and have historically included a healthy mix of brawn and brains. A study by the Center of Regional Economic Issues (Garofalo) found that through the middle of the 20th century, Cleveland's metalworking industry thrived precisely because of the mix of entrepreneurs, innovators and investors it attracted (Northeast Ohio). Productivity grew, and the industry attracted increasing numbers of firms, providing growing employment and income in the region. Technological innovation and entrepreneurial spirit were key, then as now - but the research and development came primarily out of industry itself. Today, we need strong R&D and technology in our universities, and a structure in place for technology transfer to emerging industries in the region.
Northeast Ohio has many committed people and institutions working on the effort to strengthen our economy. The focus on developing our strength in cluster industries, and building them into larger agglomerations, is part of that effort. So is the emphasis on regional cooperation - among firms, local governments, institutions of higher education, chambers of commerce and citizens. Firms will be attracted here, and firms will stay here, if the region offers the mix of educated workforce, strong physical infrastructure, business-friendly tax and regulatory climate, and attractive amenities that are compelling to both employers and employees.
The combined efforts of all stakeholders are needed to economize on the costs of making Northeast Ohio an attractive location for entrepreneurs and a wise investment for those who can harness and retain the risk capital, physical capital and human capital that economic growth requires.
Works Cited
Panel on Policies and Prospects for Metropolitan and Nonmetropolitan America. Urban America in the Eighties. Washington, DC: President's Commission for a National Agenda for the Eighties, 1980.
Gottlieb, Paul D. REI's Profile of the Northeast Ohio Economy, Weatherhead School of Management: Center for Regional Economic Issues, October, 2003.
Northeast Ohio Regional Economic Development Strategies Initiative. Clusters Project. Accelerating Regional Economic Growth, June 1998.
Garofalo, Gasper; Michael Fogarty; David Hammack. Cleveland From Startup to the Present: Innovation and Entrepreneurship in the 19th and 20th Century. A Report for the Center for Regional Economic Issues, Weatherhead School of Management, Case Western Reserve University, undated.
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