From Rustbelt to Brainbelt: The Comeback of Legacy Cities

 "For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.” 

(Warren Buffett)

Maybe it takes a couple of Dutch guys to teach Americans about optimism and tell us that not all is lost for American Industry.  With all the talk about America in crisis we hear from at least three of the top presidential contenders, a good dose of optimism is in order.

Antoine van Agtmael and the title of his book at Brookings (photo: ArchPlan)

Antoine van Agtmael (An entrepreneur of Dutch origin but living in the US since 1968) and Fred Bakker (A Dutch journalist) came to Washington's Brooking Institution with the good news that "rust-belts are the emerging hotspots of global innovation", the by-line of their new book "the Smartest Places on Earth". 

Agtmael brings a good bit of credibility with him. He was the guy who coined the term of "emerging economies" back in 1981 when he was associated with the World Bank. And boy, was that an apt term, considering how many of America's industrial jobs went to those emerging economies in Asia, Africa and Latin America.

As early as 2013, though, after returning from a trip to China he told the Wall Street Journal that America would have a comeback. He had heard his Chinese business friends complain about America's competitiveness and strength. "I almost fell of my chair" he recalls upon hearing this for the first time.

"So when I listen to some of the political candidates on the left and the right who have this depressing talk as if our innovation has run out of steam, as if the best time in this country is behind us, and all we have problem, we came to quite the opposite conclusion. We are not declining. We are regaining competitiveness in this country". (Agtmael on the Diane Rehm show)

So what's the news that neither Bernie Sanders nor Donald Trump have heard yet, not to mention their voters? Agtmael puts it this way:

Smart innovation is replacing cheap labor as the competitive edge

Indeed, cheap labor is less and less the cutting edge advantage for the following reasons:

• emerging economies themselves experience rising wages (15% annually in China), 
• labor in total is diminishing as a cost factor due to automation and robotics 
• and information technology and data management become ever more important. 
• IT and everything around it, from Apple to Facebook, is pretty firmly in American hands. 

In information technology the US has, in Agtmael's words, a "pretty good headstart". So that is how he concluded that cheap is out and smart is in.

"What we found is that for 25 years, we had been trying to compete on making things as cheap as possible. That's a losing game. We lost against China, of course, because they had cheap labor. What we learned -- and we learned it especially after the crisis in 2008 -- was that you compete on making things as smart as possible and that we are really good at, because we have great universities, we have freedom of thinking, which allows unorthodox thinking, which allows innovation." (Agtmael on the Diane Rehm show)

For the prototype of a flourishing old industrial center, though, Agtmael  went to his homeland Holland, to the the old industrial city of Eindhoven; not even a quarter million residents inhabit this city that is the home of Philips (Next to GE and Siemens another global giant of a wide variety of products having to do with electricity) and the truck maker DAF. Eindhoven is surrounded by towns like Son en Breugel, Nuenen, Geldrop-Mierlo, Heeze-Leende, Waalre, Veldhoven, Eersel, Oirschot and Best. It decided that the region needed a renaissance and that it needed to morph from being "a company town to being an innovation hub". Key ingredients:

• A technical university
• industry with some remaining strength
• future and innovation oriented municipal leaders
• the availability of capital

The bad news: job losses in manufacturing (photo: ArchPlan)

21 municipalities, the university and Philips undertook an entirely new form of partnership which they dubbed Brainport. (slogan: "Rotterdam is the Seaport, Amsterdam the Airport and Eindhoven the Brainport"). Today the BrainPort employs over 8000 researchers on a special campus. Bakker noted that Philips' own research facility (which he compared with the famous Bell Labs in the US and which began as the “Natuurkundig Laboratorium” or NatLab in 1914 in downtown Eindhoven) was opened to all Brainport partners and became the center of the collaboration.

"As an innovative top technology region, Brainport defines the competitiveness of the Netherlands. Brainport’s strength lies in the combination of high-tech, design and a unique model of collaboration in which we seize the opportunities generated by the rapidly changing world around us and, as an accelerator for high-tech growth, help boost the economy and create a sustainable, healthy, safe and secure society". (BrainPort website)

From Eindhoven the Dutch author team set off to explore old industrial cities in the New World such as Akron Ohio, Albany, New York and Minneapolis, Minnesota and slowly formed their theory that the old industrial centers would be especially well suited to become the hotbeds of innovation.

“That’s because, like the fairy-tale Sleeping Beauty, they have lain dormant for a long time—doomed to a state of inertia by the evil witches of policy or (lack of) leadership or faulty analysis—and have been given up for lost by entrepreneurs and investors.” (from the book)

Mural at the City Garage "maker space" in Baltimore
(photo: ArchPlan)

Bakker's and Agtmael's tour did not stick entirely to Sleeping Beauty and rust. They wound up referencing shiny growth centers such as Austin, TX, Portland, OR and the Research Triangle Park in NC as well.  But the slogan "from rustbelt to brainbelt" was just too good to pass up and remained the central tenet of the book. The Economist in reviewing the Smartest Places book noted these as the reasons that speak for the rustbelt cities:

..old industrial towns are realising that they have a vital asset: cheap property. Disused mills and warehouses, with their high ceilings and exposed bricks and beams, can make attractive homes and workspaces for knowledge workers. Akron, in Ohio, has capitalised on its heritage as home to America’s four biggest tyremakers by turning itself into America’s capital city of polymers. The University of Akron’s Polymer Training Centre houses 120 academics and 700 graduate students. Companies such as Akron Polymer Systems and Akron Surface Technologies are inventing new ways to commercialise synthetic materials.

The author's did not only deviate from Sleeping Beauty at times, they also had to admit that cheap still has its draw. In listing the advantages of the rust-belt cities just as the Economist did, cheap counts as in cheap warehouse spaces, affordable housing, relatively cheaper labor, and cheap energy.

My hometown of Baltimore meets seemingly all the criteria, as once the second largest city in America and certainly an old time industrial hub, it still boasts excellent universities. But it didn't even make it into the index of the book. What could be amiss?

Rustbelt Reclamation Center Cleveland

The one ingredient missing here from the successful Eindhoven-Brainport mix  is partnerships. (Probably also sufficient venture capital). Although several of the leading universities have gingerly started limited collaboration, partnerships between industry and universities if present at all, remain concealed from the public eye. So are collaborations between the various municipalities in the region. There is no common ground that would get this area on the map as a hotbed of innovation. Things are still promoted in the traditional geographic, jurisdictional and institutional silos. The insight that author Bakker found in flourishing rustbelt centers is still absent here:

"What we found in all those places, that all those scientists, professors, politicians, entrepreneurs, they knew and they know that technology is too complex and too expensive to do it on your own". (Bakker)

For example, there are two competing bio-tech initiatives in Baltimore alone! A third one in the same small state of Maryland is happening along the I-270 corridor north of Washington DC. Naturally, Virginia has its own biotech aspirations south of DC.  It seems utterly inconceivable that the City of Baltimore would team up with DC or Philadelphia to promote the larger Northeast. Baltimore's Mayor is hardly collaborating with the Executive of the surrounding County, except when it comes to opposing what the State's Governor does.

Makerspace Baltimore

Aside from the missing collaborative spirit, the region has everything it needs, thriving old industries (Lockheed Martin), start-ups (Parking Panda, Order-Up etc.), lots of cheap warehouse space, a large workforce trained in some of the best performing school systems of the country and really good universities. Lately there is also a growing angel fund. With sports apparel underdog Under Armour (UA) Baltimore even has an aggressive new age global player whose CEO is set on putting Baltimore on a different path so that his company can beat his #1 competitor Nike. One of his first investments off his current campus is "City Garage", an incubator and "maker space" on the waterfront, large enough to accommodate an over 1000 head strong campaign rally for Hillary Clinton last week. The 134,000 square foot facility will soon operate a production area where UA will produce the full line of their products as an experiment and prototype for decentralized small production units that, if successful, would be distributed around the country for local and customized production. Still, the Eindhoven model somehow appears to be still far away and so does Agtmael's infectious optimism.

For one thing, and even Agtmael and Bakker admit it, the mis-match between the skills of the existing workforce and the skills that are needed in the new economy is persistent, particularly in legacy cities like Baltimore. As the appropriate medicine the book authors recommend the German apprentice system in which high-school age students attend school a few days a week and work the rest of the time in a factory, shop or business. A system also touted by President Obama and subject of a bill in the Maryland legislature requiring apprentice programs for large State construction jobs.

The whole complex of social equity seems to leave the authors a bit puzzled. "This is a real difference between the US and Europe" observed Bakker at Brookings, referring to the social compact that the Europeans have and that he finds lacking here.

But their contagious optimism prevails, in their interview with Diane Rehm on National Public Radio or as the speakers at the Brookings Institution and there one could see the audience eagerly absorbing the optimistic message. While the authors concede that about 7 million US jobs were lost to outsourcing and technological change, they point to 4 million new jobs that were created, and the approximately one million that Brooking's Bruce Katz estimates to be technology positions.  Agtmael seemed pretty convinced that all the lost jobs would eventually be made up in the new economy. A caller during the NPR talk show confirmed a the trend of bringing jobs back to our shores: He was with the US furniture maker Steelcase, one of the largest in the world and reported this:

"We started to bring those back with all of our tier one and tier two suppliers, whether it's role-forming steel, fabric manufacturing, caster stamping, you name it. A lot of our suppliers are now here in the United States, within the West Michigan area. So I just kind of wanted to comment on that, and as well kind of reiterate the fact that a lot of American manufacturing isn't necessarily driven by wages. It's more driven by our supply chain."

Under Armour's Baltimore production experiement
(photo ArchPlan)

The Dutch authors may just be too optimistic given the likelihood that increasingly more jobs will be replaced by robots who can even provide services (see also my article about the book "Future Industries"). On the other hand, the cautious Economist seconds the optimism:

Startups are beginning to transform manufacturing just as they transformed service industries like taxi-hailing and short-term room lets. New techniques such as 3D printing, combined with a rapid decline in the cost of computing power, are making it easier for small firms to compete with big ones. Crowdfunding sources such as Kickstarter are making it easier for them to raise capital. (The Economist). 

Likely, though, leading edge economies will have to  confront an all new definition of work in which labor isn't simply sold for money as it had been common practice since the industrial revolution. Labor and work may revert back to a pre-industrial model where work was more directly related to providing the essentials of life than to money. Along with the change of work there may be also a move away from mass production and consumption in favor of customized one-of-a kind production with a focus on quality and durability rather than obsolescence.  We already see bits and pieces of these trends evolving but haven't found yet a way of handling the social changes that are needed to make such a new economy work. But that would be another book and another blog article.

Either way, one thing is for sure, the future isn't in the rearview mirror. Bakker put it this way:

People are frightened by globalization, politicians exploit this. Looking for a new identity they think turning back is the solution....We don't need to look into the rear view mirror, we need to look forward. 

One can only hope that the presidential candidates will have time to skim this book, and the mayoral hopefuls in Baltimore as well!

Agtmael's examples show that the rustbelt to brainbelt trajectory can be real. How much it could give tired legacy cities another desperately needed lease on life can be found out in his book.

Klaus Philipsen, FAIA

edited by Ben Groff J.D.

Links:
Economist Book Review
City’s revival is gaining momentum as many key components are taking shape (Buffalo)

Rustbelt Renaissance (Greater Akron)

What can New Jersey — once the home of storied inventors like Thomas Edison and the Bell and Sarnoff labs — do to get its innovation mojo back? (Article)

Related blogpost on Community Architect: Future Industries

Belval in the Southern part of Luxembourg is a former industrial wasteland now under reconversion to a mixed-used urban area for 5,000 inhabitants and 20,000 employees with public investment of almost €1 billion. The picture is showing the City of Science in Belval.