Prospericity

Hometown Success

Just hours after reading about a dramatic 1930s nighttime row by the University of Washington’s freshman crew in Daniel James Brown’s The Boys on the Boat, I was lucky enough on my recent trip to Seattle to take my family out in a kayak on some of the same water. Our meandering journey through Portage Bay and Lake Union showed off Seattle’s remarkable beauty, and also its remarkable wealth. One can still see the the hills and the “spidery steel arch” of the Aurora Bridge that the UW crew would have seen on that freezing night long ago, but the shores we paddled past in this year’s record June heat, lined as they were with thousands of expensive pleasure craft, were the antithesis of the struggling depression-era city Brown evokes in his book.

In summer 2014 brightly painted old pianos like this one showed up in Seattle city parks.

In summer 2014 brightly painted old pianos like this one showed up in Seattle city parks.

As a native Seattleite I will admit to finding the city’s newfound wealth intimidating and often incongruous, much like the Bentley my brother-in-law spotted rolling past modest suburban homes near Carkeek Park in the city’s remote northwest corner. This is a pleasant area to be sure and one with some extremely nice view properties, but is also a neighborhood without sidewalks and with ditches for storm drains. Not an area I would think of as Bentley territory by any stretch.

Contours of Change

Then again, my deepest perceptions of Seattle were formed prior to 1990, when according federal data organized on a useful City of Seattle webpage there were 516,259 residents and 439,363 persons employed within the city limits. By contrast, the City of Seattle now estimates that as of this year population is up 28 percent over 1990 levels to 662,400. The City also estimates that in 2014 employment was 514,710, 17 percent above the total for 1990. Meanwhile median annual household income in Seattle currently stands at $61,037, substantially higher than national average of $50,502 but lower than Seattle metro area household income of $64,085.

It is worth noting that Seattle’s rise has not been one unbroken upward trajectory. The “dot bomb” recession of the early 2000’s, for instance, hit the city harder than commonly recognized. Employment within Seattle city limits fell 8 percent between 2000 and 2005, and the 514,710 employment estimate for 2014 mentioned above represents the first time Seattle has ever surpassed it turn of the twenty-first century employment peak of 502,835. It is also worth noting that Seattle’s population spike over the last thirty years or so came on the heels of a protracted period of population decline. The City’s 1990 population of 516,259 mentioned above represents an increase to be sure over the 1980 population of 493,846, but a substantial decrease from the city’s population of 557,087 thirty years earlier in 1960.

This “down and then way up” long-term population pattern, with the bottom of the curve somewhere in the 1980’s, bears out a perception I have long held that something profound changed in Seattle sometime in the middle part of the Reagan years. It is now possible with the benefit of hindsight to see that these changes ran deeper than the lifestyle shifts and emerging culture of high-end consumption that I witnessed as a returning college student. Seattle really had begun to change at this time, with the city emerging decisively out of the period of decline that unbeknownst to me had characterized my entire childhood in the 1970s and early 1980s.

A “Thick” Labor Market

What drove this shift? The obvious answer and not inaccurate answer can be stated in one word – Microsoft. In his fascinating 2012 book The New Geography of Jobs, UC Berkeley economist Enrico Moretti makes a bold case that a single event, Microsoft moving from Albuquerque to the Seattle area in 1979, proved the catalyst for the wider change in fortunes of the Seattle region. Moretti estimates that by the writing his book Microsoft was responsible for “creating 120,000 jobs for workers with limited education … and 80,000 jobs for workers with advanced degrees” within the Seattle regional economy. This is an indirect employment estimate, and does not include the substantial number of people directly employed by the software behemoth.

Microsoft’s success, moreover, has created the conditions for a self-sustaining ecosystem of high technology firms. By now, this ecosystem rests not in one company, but instead in what Moretti describes as “thick” labor market of software engineering and related high technology skills.

Evidence supporting Moretti’s assertion about a thick Seattle labor market can be found in this recent piece from the website Geekwire describing the emergence of numerous engineering offices in the Seattle area established by firms from outside the region (engineering centers). Facebook, to take one example reported in a related Geekwire piece, has recently opened up a large new engineering office on Dexter Avenue with room for up to 2,000 employees. The company currently has 500 employees in the Seattle area, up from 90 in 2012 and two in 2010. But Facebook is just one example. By clicking on the story above one can find links to stories related to a full 62 companies that have opened up engineering outposts in Seattle since 2010. The recurrent theme, if one digs into these Geekwire news stories, seems to be not only that that these out of region companies have key customers in Seattle, but also that they perceive the Seattle region as a good, even indispensable location to find skilled workers.

What Other Regions Can Do

What can other regions do to emulate the virtuous cycle Seattle has experienced? Wishing waiting, and hoping for the next Microsoft, obviously, is not a satisfying answer. Instead, it may be useful to simply notice that the Seattle region has over the last thirty years become a hotbed for the creation of many “traded” firms, Microsoft chief among them but by no means even the only household name.

Local leaders in basically any region can nurture traded firms taking the modest step of setting up: 1) a small team to collect research on mid-sized firms that export goods and services outside the local area; and, 2) an extension service to provide targeted financing and technical assistance to these same companies.  As I have argued repeatedly on this blog, focusing on mid-sized companies with export potential is a far better economic development strategy than, is so often the case, lavishing resources on losing propositions like professional sports teams or satellite offices of firms too big to benefit from locally provided technical support.

As a final point, a second thing any region can do is to focus on building the worker skills that provide the ultimate foundation of successful ecosystems of traded companies like Seattle’s. Moretti ends his book on this basic theme, noting that “America’s unstoppable rise from unsophisticated outpost on the world’s periphery to global economic superpower had a lot to do with the superior skills of its workforce.” Policies and initiatives that focus on education and skill development, in other words, may be the most important thing leaders can to do turn around the trajectory of the many American urban regions that, unlike Seattle, do not find themselves caught in a virtuous economic circle of new firm development and thick labor markets.