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Creative Industries, Creative Class, and the Effects on Urban Economic Growth

I recently read an article by Erik Stam, Jeroen P.J. de Jong, and Gerard Marlet called “Creative Industries in the Netherlands: Structure, Development, Innovativeness and Effects of Urban Growth.” Part of their research documented in this article looks at the effects of the creative industries and the creative class on innovation and urban economic growth. The difference between the two is that the creative industries is defined by industry sectors (e.g., NAICS codes), and the creative class is defined by occupations. I think the conclusions they draw from their research is quite interesting and very useful for economic development policy.

The analyses show that, with the exception of the metropolitan city of Amsterdam, there is no relation of the presence of creative industries with employment growth. In general, it seems that a concentration of creative industries is a less important determinant for employment growth in cities than a concentration of creative people/creative class. Creative industries do not seem to act as a catalyst for the effect of knowledge (spillovers) on urban economic growth in general. This seems to occur only in the metropolitan city of Amsterdam. This role is ore likely to be taken by the creative class, which was shown to have a much stronger relation with employment growth than the creative industries. If the objective of local economic policy is employment growth, improving living conditions for the creative class…could be more effective than creating conditions for stimulating the creative industries, which is currently widespread policy in the Netherlands…If the objective is not specifically employment growth, but is more focused on the innovativeness of the business population, creating conditions to stimulate the creative industries seems a reasonable policy, as we have shown that firms in the creative industries are more innovative than firms in other industries. However, our study shows that the creative industries are very heterogeneous; businesses in the distinctive domains face different constraints. One policy to stimulate all the creative industries will be less effective than more specific policies tailored to the nature of the specific domains.

Our findings call for a focus on living conditions and labour markets…attracting and retaining individuals in the creative class, instead of business conditions for attracting firms belonging to the creative industries if growth in cities is the objective. Only in very specific urban environments, such as the metropolitan city of Amsterdam, does a policy to attract and stimulate business activities in the creative industries seem to be justified. Perhaps metropolitan environments distinguish themselves from other lower order cities by their intensive social and cultural activity (including creative industries) that provides a source of inspiration for other economic activities…, the local ‘buzz’ of unpredictable, innovative interactions…(pp. 128-129).

I agree with their conclusion that economic development is more about attracting people than attracting companies, but there has to be a place for the creative class to work, so it is also important that the appropriate conditions exist within a metropolitan economy to stimulate the creation, growth, and attraction of creative industry businesses as well. In other words, it is important, as it always has been, that innovation be catalyzed for an urban economy to develop, which brings us back to their point about the importance of creative industries in fostering innovation.

(The article cited in this post was published in the journal Geografiska Annaler: Series B, Human Geography in 2008.)

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2015 San Antonio Creative Industry Growth and Prosperity Report

I recently presented the updated economic impact of the creative industry in San Antonio at the Tobin Center. The measured impacts are for 2014. The presentation can be found here, but in brief the industry has shown steady increases across all measures from 2012 through 2014. As of 2014, the industry, employs 21,736 people who earn over $1 billion in wages. The total estimated output of the industry in 2014 was $4.3 billion. These numbers do not include any multiplier effects. This industry, maybe more than any other industry, registers an impact far beyond its standard economic impacts as previously mentioned because of  its “artistic dividend.” This is a concept coined by Ann Markusen and David King to capture the productivity enhancements and economic growth that would not occur were it not for the presence of artists and other creative workers in the area. So, besides the rather large impact the industry directly has on employment, income, and output, it is a very important industry to the development of San Antonio’s economy because of the productivity improvements it provides to every other industry. Tobin Center for the Performing Arts \

Why Study Economic History

I just finished reading Paul Ormerod’s book, Positive Linking: How Networks Can Revolutionise the World. It is a great book, in which he clearly makes the case that if we truly want to understand how the economy functions then we have to understand the role of networks. In the course of part of this discussion, he also provides a great illustration of why we should study economic history. This is a long quote that spans several pages in the book, but I think it is worth it.

     In the week of 15 September 2008 capitalism nearly ground to a halt, Share prices collapsed. Credit markets froze. And we were within hours of cash machines, ATMs, being closed to the public.

     It was the American authorities who really saved the world in that terrifying week. And they did so not by the manipulation of elegant rational expectations models and theories, but by experiment and by relying on their knowledge of what had gone wrong in the Great Depression of the 1930s. Faced with a wholly uncertain immediate future, the authorities reacted by trying rules of thumb, by seeing what worked and what did not. They reacted exactly as Herb Simon said humans behaved all those years ago. They knew it was impossible to work out the optimal strategy. So they tried things which seemed reasonable and, quite literally, hoped for the best.

     It was fortuitous – and an important illustration of the role of chance and contingency in human affairs – that the chairman of the Federal Reserve at the time, Ben Bernanke, was a leading academic authority on the Great Depression. He knew that, above all, the banks had to be protected. It may seem monstrously unfair that the bankers themselves escaped penalties – indeed, it is unfair – but the abiding lesson of the 1930s is that in a financial crisis the banks have to be defended. Money is the blood which flows through the economy to keep it alive. If the chairman instead had been, say, a world expert on dynamic stochastic general equilibrium models, we would almost certainly now be in the throes of the second Great Depression.

     Bernanke had already restored a concept which is absent from the rational behavior rule book, that of ‘moral suasion’. Moral suasion, the central bank ‘persuading’ bankers to make particular decisions, is how banks used to operate before the complicated, rule-based, hugely expensive bureaucratic control systems based on concepts of ‘market failure’ were introduced…

     The key point about all these actions is that the American authorities paid no attention to academic macroeconomic theory of the past thirty years. RBC theory, DSGE models, rational expectations – all the myriad erudite papers on these topics might just as well have never been written. Instead, the authorities acted. They acted imperfectly, in conditions of huge uncertainty, drawing on the lessons of the 1930s and hoping that the mistakes of that period could be avoided (p. 183-184 and 190, electronic version).

To me, this is a clear (and dramatic) example of why it is important to study and understand the lessons of economic history.

Complexity Theory is the New “Great Flare” in Economics

I just finished reading Complexity and the Economy by W. Brian Arthur, and like almost all of his work, it was very enlightening. His publications are also a joy to read because his writing is on par with some of the best novelists I have read, in my humble opinion. Many thoughts and passages caught my attention throughout the book, but I found the following paragraph particularly novel-like and thought-provoking.

“Economics as a discipline is often criticized because, unlike the ‘hard sciences’ of physics or chemistry, it cannot be pinned down to an unchanging set of descriptions over time. But this is not a failing, it is proper and natural. The economy is not a simple system; it is an evolving, complex one, and the structures it forms change constantly over time. I sometimes think of the economy as a World War I battlefield at night. It is dark, and not much can be seen over the parapets. From a half mile or so away, across an enemy territory, rumblings are heard and a sense develops that emplacements are shifting and troops are being redeployed. But the best guesses of the new configuration are extrapolations of the old. Then someone puts up a flare and it illuminates a whole pattern of emplacements and disposals and troops and trenches in the observers’ minds, and all goes dark again. So it is with the economy. The great flares in economics are those of theorists like Smith or Ricardo or Marx or Keynes. Or indeed Schumpeter himself. They light for a time, but the rumblings and redeployments continue in the dark. We can indeed observe the economy, but our language for it, our labels for it, and our understanding of it are all frozen by the great flares that have lit up the scene, and in particular by the last great set of flares” (p. 143).

In my opinion, complexity theory or complexity economics is the next “great flare” in economics, and when (if) it becomes mainstream economics, my hope is that it will naturally take us past the machine-like view of the economy into a deeper, more appropriate view of the economy as a continually evolving complex system. This will also hopefully move us beyond the religious zeal to which we tend to adhere to the “great flares” that can be cataclysmic in the worst of its applications into a more open-minded understanding of economics and its application to public policy and our everyday lives.

I also love the fact that he mentions folks like Ricardo, Marx, and Schumpeter as one of the theorists who launched some of these “great flares.” In mainstream macroeconomics, these three economists get very little, if any, mention in the textbooks. IN fact, I looked in some of my macroeconomics textbooks last semester, and in some they were not mentioned at all. In fact, I could not find one that mentioned Marx. If Ricardo and Schumpeter were mentioned, they received a paragraph worth of text, at best. Even more surprising to me was that the history of economic thought books I have do not give Marx and Schumpeter full chapters. I agree with Arthur that these men forth theories that were “great flares,” and as such, they should be part of required economic education.

Update on San Antonio and Texas Metro-regional Economies

This past Tuesday, June 23, I gave a speech to a gathering of bankSNB directors and clients on the San Antonio regional economy. I provided an update on how the San Antonio economy is doing through April and compared it to the U.S., Texas, and other major metropolitan economies in the state. In short, San Antonio’s economy continues to grow at a healthy clip, and I expect the growth to continue through the rest of the year. One graphic that really jumped out to me was the rapid rate of increase in single-family housing prices, especially in Dallas and Fort Worth. This is certainly something worth watching going forward. If you are interested in looking at the presentation, it can be found here.

The Possible Development of a San Antonio-Austin Mega-Region

There is some thought that the San Antonio and Austin metropolitan areas will eventually grow together and become one mega-region. I know some people that regularly commute to and from Austin and San Antonio for work and pleasure. A few people I know even make the commute daily for work. I have made several drives up and down I-35 to Austin for both business and pleasure. So, there are certainly economic linkages that have already developed between the two metropolitan areas. A few economists have even speculated that the Texas triangle formed by San Antonio, Dallas-Fort Worth, and Houston will become a mega-region. I think this is too large of a geography for much economic integration to occur over the next couple of decades, but what about the development of a San Antonio-Austin mega-region?

Population growth in both San Antonio and Austin has been strong over the past decade and is projected to be strong for the next couple of decades. This growth in cities like San Marcos and New Braunfels, which sit in the middle of what would become the mega-region, has been even stronger and will continue to grow rapidly.

Based on my observations of growth in the region, I think the creation of this mega-region will occur over the next couple of decades, but I wanted to see if the population projections supported this. I pulled data from the Office of the State Demographer showing the projected population growth from 2015 through 2035 in all of the counties that would comprise the mega-region. The following table shows these projections, which support the conjecture that the mega-region will develop. (The Dallas-Fort Worth numbers are included only for comparative purposes.)

San Antonio-Austin Mega-Region
County Major City 2015 Population 2035 Population Growth Rate
Bastrop Elgin 80,780 115,997 43.60%
Caldwell Lockhart 41,100 54,485 32.57%
Hays San Marcos 182,893 308,142 68.48%
Travis Austin 1,111,829 1,407,810 26.62%
Williamson Round Rock 477,329 744,423 55.96%
Atascosa Pleasonton 48,451 63,491 31.04%
Bandera Lakehills 21,475 24,089 12.17%
Bexar San Antonio 1,839,926 2,331,743 26.73%
Comal New Braunfels 118,571 160,515 35.37%
Guadalupe Seguin 144,847 204,763 41.37%
Kendall Boerne 36,090 47,658 32.05%
Medina Hondo 49,158 62,562 27.27%
Wilson Floresville 46,488 61,693 32.71%
Total 4,198,937 5,587,371 33.07%
Dallas-Ft. Worth 6,907,216 9,059,825 31.16%

How economically integrated this region becomes is another question, though. In my opinion, just expanding the highways or adding new highways so more cars can travel back and forth will not facilitate more integration. It will be necessary to add rail between San Antonio and Austin with several stops in between and complementary rail service of different types at both ends of the region. It is also going to be vital that the development of the downtowns in both Austin and San Antonio continue. In other words, it will require an integrated, comprehensive transportation system throughout the region in order to achieve the large economic benefits from the creation of this mega-region.

Development Around the Tobin Center: A Photographic Study

Last weekend, my family and I had the pleasure of staying at the Hotel Indigo – a very nice hotel and great value. The hotel sits right across the River Walk from the Tobin Center for the Performing Arts, and while we were at the pool, a rainbow appeared above the hotel and the Tobin Center. I immediately ran and grabbed our camera to see if I could get some good shots before it disappeared. In fact, a bunch of people staying at the hotel very quickly gathered on the patio by the pool to take pictures. The header photo to this blog is one of the photos I was able to capture. The full picture of the header photo along with a few others I captured are shown at the bottom of this post. You can also see some pictures and read about my wife’s perspective on the events at her blog: http://www.livinsassy.com.

I have done several economic analyses of the impacts of various new facilities, redevelopments, and transportation projects. It is a lot of fun to do these studies, as I love crunching the numbers, but as the Tobin Center was being built, I came up with the idea of studying the impacts it would have on development in the immediate area. I have done quite a bit of cultural planning and analysis of the interplay between the arts and economic development, but I have never had the opportunity to follow the impact of a facility like this on economic development over time. The difference with this analysis is that I would track the development over the years photographically. I can complement the photographs with the numbers later, but I think it will be great fun to use the camera as a tool in the analysis. I will be able to pursue two of my passions – photography and economics – all in one project. As previously mentioned, this idea came to me while the Tobin Center was being built, so obviously, I have been procrastinating in getting this project started. The beauty of the rainbow, the Tobin Center, the Hotel Indigo, and being with my family and my daughter’s great friends this past weekend provided me the inspiration and motivation to finally get to work on it. So, the project has officially begun. I will post more soon about how you can follow it. This is a long-term project, as the development will not occur overnight, so if you do plan to follow the project, please be patient. I am confident the development will occur, and as it does and as I am able to capture it with my camera, I will post the pictures and my thoughts. It will be fun!

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Mexican Nationals Spending in El Paso

I recently spoke at the International Conference of Shopping Centers West Texas Idea Exchange conference. Here is the presentation: Presentation on Mexican Nationals Impact to ICSC 4-22-15. Of the twenty counties included in this study, El Paso received the highest amount of spending by Mexican Nationals in 2012 at almost $446 million. Our estimate is that the largest amount of money is spent on clothing at about $205 million.

On a side note, I was very impressed with the accomplishments El Paso has made in its economic development and its approach for future development. This includes an awesome new baseball park in their downtown and renovations to a new theater and improvements/additions to other arts facilities in their center city. They also have much more to come with some exciting mixed use projects downtown and in other parts of the city, as well as a streetcar serving the downtown area that will be installed in the neat future. I know the recent economic numbers don’t necessarily show it, but from my quick “on the street” view of the city, they are moving in the right direction.

Forecast for Texas and San Antonio Economies in 2015

I released my 2015 economic forecast for the San Antonio economy yesterday. I am projecting employment growth in the range 2.25-3.0% and a reduction in the unemployment rate to 3.4-3.8%. The employment growth forecast is down a bit from the growth San Antonio experienced in 2014 at 3.26%, but it is still a healthy growth rate for San Antonio and will continue to push unemployment down from its December rate at 3.9%. Keith Phillips, senior economist at the Federal Reserve Bank of Dallas, projects employment growth for Texas to be in the range of 1.0-2.0% in 2015. Employment across the state grew at a rate of 3.23% in 2014, so while it is projected that the state will continue to see growth, it is a fairly sizable reduction.

The reductions in projected growth rates for 2015 are mainly due to the impacts on the Texas and San Antonio economies, but the divergence in the size of the decreases in the growth rates between Texas and San Antonio is due to the differing impacts on the respective economies. The energy industry is a big (and increasing) part of the Texas economy, so while there will likely be a boost in consumer spending due to lower fuel prices, areas like Houston, Dallas, Ft. Worth, Midland/Odessa, Corpus Christi, and Longview are still likely to be hit pretty hard, since the energy industry is a large part of their regional economies.

However, while the San Antonio economy will be negatively affected by the downward pressure from slowing growth across the state, it has some unique characteristics that will minimize the impact. One key characteristic is that the mining industry is only about 3% of the San Antonio economy. Additionally, much of that industry in San Antonio is focused on refining, so it will actually benefit from the low oil prices. There has also been some concern that the slowing activity in the Eagle Ford shale area will have a big impact on San Antonio. There will certainly be a negative impact, but the vast majority of the activity in the Eagle Ford area is south of San Antonio. Thus, while the San Antonio economy certainly benefited from the Eagle Ford shale play, the impact on growth was not substantial, and as such, I don’t think the negative impact will be very large, either. Another unique characteristic is that the reduction in employment that will continue as Eagle Ford drilling activity decreases will likely be absorbed by the construction industry in San Antonio. It is not unique to San Antonio that the housing market is very strong, as the housing market is tight across the state. As the Eagle Ford hiring activity increased a few years ago, we saw workers leave the construction industry in San Antonio to work in the Eagle Ford area for much higher wages, but that flow of labor will most likely reverse itself this year. With the tight housing market, construction activity is likely to increase this year, so as employment in Eagle Ford continues to decline, many of these workers but the close proximity of San Antonio to Eagle Ford means that many of these workers will possibly be able to find employment in the construction industry. Lastly, much of the tourism business in San Antonio comes from visitors who drive to the area, so the lower gas prices making it cheaper to drive and providing additional disposable income could cause a boost in tourism in San Antonio.

Other risks to the forecast include slowing growth around the world and the strong dollar. The impact of the strong dollar is already starting to show its effects on the San Antonio economy, but I do not think this will be a large negative impact. It does contribute some to the slowing growth as indicated in the forecast.

If the forecasts come to fruition, growth in Texas will likely fall below that of the U.S., but San Antonio will at least see growth at its historical average rate. However you look at it, 2015 will still be a year of growth.