Authors

Brad McDearman

Nonresident Senior Fellow - Metropolitan Policy Program

R

Ryan Donahue

Policy/Research Assistant

After months of anguished debate (which one participant equated to choosing a favorite child), a key meeting with cluster leaders made the decision clear.  Among these three clusters, they realized water technologies represented a truly differentiating specialization on a global scale, an increasingly relevant attribute worldwide, and the best opportunity to establish a global identity and open new doors for the entire region. It was also the cluster that was best organized to pursue international business development.

Water technologies in Milwaukee clearly encompasses the critical factors necessary for a robust cluster. Crucially, it has leadership from the region’s large base of 200 existing firms in the industry, which range from start-ups to multinationals, and all strongly identify with the cluster. The president of Badger Meter, Richard Meeusen, is a particularly visible and vocal champion. In fact, the cluster’s formation was driven by leaders from a few large, global companies in the region that realized they were not just part of a scattered set of manufacturing industries as defined by their official industry codes, but were connected by the “theme” of water technologies (which is not defined by an industry code).

Further, these leaders formed a staffed organization, the Water Council, in 2009 that knit the cluster together. To confirm that the Milwaukee region was truly globally relevant, the Water Council conducted a study of global water hubs and found that only the nations of Israel, Singapore, and the Netherlands had anywhere near the concentration of water technologies companies and assets as the Milwaukee region, further cementing the region’s global vision as a viable, near-term reality.

The cluster has been further boosted by significant investment from state government and universities, as well as a physical presence (the Global Water Center building) in a water technologies innovation district where all players can connect.

Lastly, all of this recent activity is rooted in Milwaukee’s strong economic history related to water (including a location on the world’s largest freshwater system). The region was originally built around breweries, tanneries, and food processing operations. These “wet industries” were served by a growing set of water technology companies that remained in the region even after the larger industries declined.

However, while the team had committed to water technologies through the published plan, they remained hesitant in implementation. That is, until two market trips to Germany this year offered the perfect opportunity to test the value of putting a stake in the ground.

In April, the Milwaukee 7 Regional Economic Development Partnership sent a delegation to Hannover-Messe, the world’s leading industrial technology trade fair. As put by Beverley Ferrara of the Milwaukee 7: “Our region came with a broad marketing message, bumping up against almost 100 U.S. metro areas that were part of the SelectUSA pavilion. And guess what? We’re all saying the same things: we have clusters around manufacturing, the right location, affordable real estate, talented workforce, friendly business climate, incentives, strong infrastructure, great lifestyle… Trying to be everything to everyone ends up being nothing to no one.”

A few weeks later, the Milwaukee 7 teamed up with the Water Council to attend IFAT, the world’s leading trade fair for water in Munich. Armed with a highly targeted message, the team came away with a very different result. According to Beverley, “the show was a great success – already a company is planning a site visit to Milwaukee – and cemented the concept that a globally relevant cluster, plus true specialization, equals a compelling value proposition.” The contrast between the two trade fairs strongly confirmed that the signature strategy of Greater Milwaukee’s recently released global trade and investment plan – a focus on water technologies – was the right choice.

While identifying and fully embracing a cluster as an anchor for global engagement can generate real opportunities, it is also critical that the chosen cluster is legitimate and clearly defined, not a broad aspiration that many other metros claim (biotech is a common example). The increasing number of local startups, attraction of new investment and firms, and the growing stream of international delegations to the region signify that by owning its strength, Greater Milwaukee can rightfully stake its claim as the global fresh water hub.

Picture courtesy of brennanMKE

      

 

 

From Athens and Rome in ancient times to New York and Singapore today, a handful of cities have stood out as centers of economic, military, cultural or political power beyond their regions or nations. In the twenty-first century, the number of globalizing cities is greater than ever before. New technologies and shifting geo-politics enable more cities to attract global talent and capital, lead in the hosting of new advanced industries, and achieve global recognition and influence.

In Global Cities: A Short History, Greg Clark, an internationally renowned British urbanist, examines the enduring forces—such as trade, migration, diversity and technology—that have enabled some cities to emerge from the pack into global leadership. Much more than an historical review, Clark’s book looks to the future, examining the new waves that are transforming cities around the world as well as the emerging challenges that global cities will face.

Which cities will be the global leaders of tomorrow? What are the common issues and opportunities they will face? What kinds of leadership can make these cities competitive and resilient? Clark offers answers to these and similar questions in a book that will be of interest to anyone who lives in or is influenced by the world’s great concentrations of people and capital.

      

 

 

San Antonio Mayor Ivy Taylor was also slated to join the panel, but due to severe weather, she was unable to leave her home state. Afterwards, I had the chance to ask Mayor Taylor about her vision for an inclusive, internationally-competitive San Antonio. Below is an edited version of our conversation.

Mayor Taylor, how do you define a competitive and inclusive city?

My vision for San Antonio is a globally competitive city where each of us has the opportunity to prosper. A globally competitive city must make strategic investments to build up the ecosystems in its targeted industries. Globally competitive cities also offer a quality of life that attract and retain workers who have the choice to live anywhere. We must think and act globally—and understand economic, technological, and demographic trends around the world –if we are going to capitalize on our current assets to fuel growth from within our community.

San Antonio has produced a global trade and investment plan as part of its participation in the



Global Cities Initiative



. Why is this important?

For many years, our primary economic development strategy was to recruit new domestic companies, with a secondary emphasis on local retention and expansion. However, we realized that this strategy was not leading to sustainable growth – for our city, our businesses, or our residents. Companies that were expanding – and even our existing employers – needed a skilled workforce, better logistics, and improved infrastructure. So we knew that we needed to take stock of our assets and then be intentional about growing our economy from within. We identified industries where we had strengths and then sought to fill in around them, to support them and create even more specialization. With help from Brookings, we also identified our strengths in exports and which countries had already or were likely to be sources of foreign direct investment. In 2013, 9.2 percent of our economy came from exports and supported close to 30,000 jobs. We are projecting that exports from the San Antonio metro area will triple to $27.6 billion by 2025, supporting more than 40,000 jobs in the region.

Global trade has been getting a lot of criticism lately as not benefitting working class Americans. Does trade fit into inclusive growth?

Our experience in San Antonio shows that global trade can bring great benefits to our community. Cities have to be proactive and engage the global economy through efforts that stimulate the creation of sustainable, well-paying jobs: this is the inclusion agenda. Foreign investment can drive industry specialization in a metro area, raising a region’s profile and making it more attractive to other firms.

Our global strategy is closely tied to building an inclusive economy for two reasons: First, engaging globally allows us to capitalize on our bilingual workforce – about 45 percent of our population speaks a language other than English at home, and about two-thirds of our population is Latino. These are assets in the global marketplace. Second, increasing exports and foreign investment can change the nature of our economy for the better. San Antonio has historically had a reputation as a low-wage, low-skill workforce, and currently, somewhere between 11 and 19 percent of our population reads at or below a fifth grade level. We cannot thrive as a region unless we utilize all our resources, which is why my administration has renewed its focus on youth mentoring, digital inclusion, and adult literacy programs. By helping our globally-competitive industries grow, with a skilled workforce, we can increase good jobs and change that narrative.

What other signature efforts do you have underway to promote economic competitiveness and inclusion in your city?

I launched SA Tomorrow, a long-range plan that will guide San Antonio as we welcome more than a million new neighbors to our area during the next several decades. SA Tomorrow consists of three linked plans: transportation, sustainability, and growth and economic development. Equity is an explicit component of SA Tomorrow, which aims to benefit all our current and future residents. SA Tomorrow was developed through a very inclusive process. Hundreds of local professionals, subject matter experts, and community advocates served on nine working groups to craft the plan.

SA Tomorrow recommends that we focus denser growth in 13 live, work, play centers that offer public transit access, a range of housing types and prices, and civic resources which are directed throughout our community. With regard to inclusion, my goal is to create stable, mixed-income communities that offer our residents more choices. As a former affordable housing and community development professional, I understand concerns about gentrification.  However, research tells us that San Antonio is one of the most income segregated cities in the United States and very low-income residents have only a 6.5 percent chance of reaching the top income quintile during their lifetimes. We have to change that.  

I’ve also launched SA Works to identify skills gaps, align our education pipeline to meet those needs, and target interventions for unemployed and underemployed adults. We have local companies developing curriculum at our community college and offering paid internships to our dual-credit students so they experience the demands of the workplace while they are still in school. Businesses send outstanding employees to teach in these programs, and are mentoring students at all levels. An industry-led effort can galvanize support from other businesses and from across the political spectrum. I’m very proud of what we’ve been able to accomplish so far – and we are just getting started!

Image courtesy of Pedro Szekely via Flickr. 

       

 

 

Speaking at an event hosted by the Brookings Metropolitan
Policy Program and the National League of Cities, Mr. Gurría presented OECD research
showing that income inequality is higher in the United States than most other
wealthy nations, and that the gap between rich and poor is greater in cities
and metropolitan areas.

Brookings’s recent Metro Monitor affirms this trend, with only eight of the nation’s 100 largest metro economies
making comprehensive progress on metrics of growth, prosperity, and inclusion
since the end of the recession. As Brookings Vice President Amy Liu summarized
in her opening remarks, “economic growth is easy, but inclusion is harder.” Here
are five key takeaways from the event:

1. Inclusion is key to boosting economic growth and
productivity

OECD Secretary-General Ángel Gurría argues that inequality
in the United States can inhibit broader growth if lower-income Americans do
not have the resources to invest in their future. With inequality higher in larger cities, furthering inclusive growth must be a priority for local
policymakers.

2. The business community has a stake in ensuring growth is
inclusive

JPMorgan Chase’s Peter Scher explains that large
corporations should invest in inclusive development because, in addition to
having a moral responsibility to invest their abundant resources, having more
people in jobs and more people in higher-skilled jobs is in businesses’
self-interest.

3. Investing in early childhood development is essential for
inclusive growth

Investments in early childhood development can help put
young people on the path to educational and economic success, thus increasing
their contribution to local economies, explains Dow Constantine, King County
Executive in Washington State.

4. Targeted coding programs can fill high-growth jobs and increase
diversity in tech

Using CodeStart, a training program in Atlanta, as an
example, Rodney Sampson explains how investing in disconnected youth and
providing them with in-demand coding skills, as well as critical thinking
skills, financial literacy, and a safe and stable environment, can create high-growth
jobs, diversity in the tech industry, and a more inclusive economy.

5. Elected local officials are integral to solving affordable
housing challenges

Cecile Bedor of GreaterMSP argues that elected officials
must provide and preserve affordable housing in neighborhoods where new public
transit investments are spurring high market demand.

      

 

 

How, then, can new approaches to exports and FDI make it into mainstream economic development practice? It’s an uphill battle, but a few places are making progress. Even though these metrics are imperfect and, in some cases, laboriously handcrafted, at the very least they represent successful stopgap measures for assessing impact until better solutions emerge.

States, which have been in the export game longer than metros, offer some of the best examples. Take Virginia (where we recently completed a study commissioned by the Virginia Chamber of Commerce Foundation), which passed a bill to increase its international trade budget by 20 percent and move its international trade division from the state’s main EDO to a new entity. This was possible because Virginia’s international trade division assiduously collects data from companies participating in its flagship initiative, VALET, an export accelerator for high potential mid-sized firms. The structure of the program makes calculation of reasonably accurate performance metrics possible. Participating companies have to apply, which provides the state with good baseline data for participating firms. And it is a two-year process, long enough that participating firms usually have measurable successes while in the program. The result is convincing statistics, such as the fact that companies experience a 54 percent increase in export sales while in VALET.

At the city level, the Portland Development Commission (PDC) has followed a similar approach with its We Build Green Cities strategy in Japan. PDC has worked with the same, relatively small group of firms for several years. Its employees are intimately involved in the process of connecting firms to projects in Japan, so they are able to track the value of the contracts that PDC has directly facilitated. (The number far exceeds the city’s investment in the program.) Success brings challenges; however, as firms become more capable of landing their own contracts – the very point of the program – they become less reliant on PDC staff and thus impact becomes harder to measure.

Neither example is perfect. Both programs likely attract firms that were already better positioned to export than the average firm. As Tim Bartik has written, these “selection biases” are a major impediment to accurately measuring economic development impact. To truly isolate their impact, economic development organizations would have to track a statistically similar group of firms that didn’t receive export assistance and compare the outcomes. To partially account for this gap, Virginia produces qualitative case studies that detail how its assistance contributed to firms’ global success.

Some regions simply avoid traditional metrics altogether, in recognition of the fact (as noted in our previous blog post) that exports can increase a firm’s competitiveness without having a clear impact on outward measures like jobs and capital investment. Many leading export programs in U.S. states (Florida, New York, Pennsylvania, Virginia, and Washington) as well as foreign countries (Australia, Canada, Germany, and the U.K.) don’t track jobs or capital investment in their evaluations of trade success. These leading U.S. states all try to gather export sales figures on a voluntary basis, but because of low response rates they mostly rely on measures of customer satisfaction and company success stories (as do most foreign governments).

Of course, these company export success stories hold more weight when paired with evidence on how their success matters in a broader context. While Virginia doesn’t directly track jobs created through its VALET program, it has produced research showing that 1 percent of firms accounted for 60 percent of the state’s job growth over a five year period. On average, these firms grew from 12 to 31 employees each – meaning that many of them match the profile of the mid-sized firms that VALET serves. Similarly, in Portland, a “Value of Jobs” coalition study showed that the region’s traded sector workers make 42 percent more than the average worker in a local serving industry.

In short, the most successful regions take a multi-pronged approach to measure what they can and, in the absence of data, otherwise rely on case studies supported by rigorous analysis. But these approaches still capture neither medium-term impact that regions hope to achieve, such as growth in export volume or foreign investment, nor long-term outcomes, such as per capita income growth. 

      

 

 

Not only does Hartsfield-Jackson Atlanta International Airport continue to move more travelers than any other airport in the world, it ranks first in international through-traffic passengers. Atlanta also serves more nonstop international destinations than the next three busiest U.S. airports (Los Angeles Airport, Chicago’s O’Hare Airport, and Dallas/Fort Worth Airport). This high international connectivity is a competitive advantage, offering easier and more efficient access to global markets and talent.

Like many metro areas, Atlanta historically has struggled with how best to maximize the impact of its airport beyond moving people and goods across its taxiways and terminals. Airport operations are an enormous economic engine, leading to $34.8 billion in direct business revenue and employing 63,000 workers, according to a 2013 report released by the airport. However, transferring the most international travelers to somewhere else does not take full advantage of broader economic potential.

So Atlanta’s leaders have been assessing how to align the region’s distinctive economic specializations with its international aviation connectivity, beyond their more conventional efforts to promote cargo flows and commercial real estate development. They combined airport access with the region’s sophisticated legal community, unusually intense concentration of multinational corporate headquarters, and the international presence of 78 consular and trade offices.

And they identified an emerging market opportunity in the growing number of complex disputes associated with global business activities. Arbitrating legal issues between foreign companies in a neutral country is an increasingly common remedy when firms are concerned that judgment in either native court would give a “home-court advantage” to one party. International arbitration is enforceable in the over 150 countries that are signatories to a 1950s agreement that established common practices.

As a result, the Atlanta Center for International Arbitration and Mediation at Georgia State University was opened last fall to help tap this potential for the region and compete with other emerging cities. Making Atlanta a global hub for arbitration proceedings between foreign firms will increase exports through delivering legal services and hosting litigant teams, and it will bring more global awareness and business links to the region. One study placed the 2013 economic impact of international arbitration in Toronto at nearly $275 million Canadian dollars.

ACIAM markets and pursues agreements to bring more cases to the region, offers meeting space and services to support arbitration, and offers continuing education classes for area lawyers, among other activities. “The practice of international law is less and less the exclusive purview of the international firms in New York or London or Paris and the Continent,” Shelby Grubbs, the ACIAM executive director, said in a phone interview.

Groundwork for the Atlanta center began six years ago. Regional leaders needed to work with state officials to overhaul the state arbitration code in line with international rules. They started hosting arbitration conferences to raise visibility. And they collaborated with Georgia State, which included the center in plans for its new downtown law building.

“ACIAM weaves together our region’s industry and infrastructure strengths with our plans to increase exports, foreign investment, and international visibility. And it requires business, government, and university support to implement,” Jorge Fernandez, vice president of global commerce for the Metro Atlanta Chamber, told us over email. “In these ways, ACIAM really illustrates metro Atlanta’s comprehensive response to the evolving global economy.”

      

 

 

Paris already houses renowned higher education institutions, from the Sorbonne to its network of prestigious grandes écoles. But in the eyes of French authorities, no single institution (or geographic cluster of institutions) rivals competitor regions such as Silicon Valley or Boston in terms of research prowess or name recognition. The goal of Paris-Saclay, therefore, is to consolidate many of France’s most potent research institutions under one common brand and co-locate them in one geographic cluster about 45 minutes outside central Paris.

This is neither a cheap nor organizationally simple task. The French central government has allocated €2.5 billion for building projects, laboratories, and centers of excellence. And that number does not include the billions required to build Line 18 of the Grand Paris Express Métro, which will connect Paris-Saclay to the rest of the Île-de-France region. Organizationally, the university has had to streamline the offerings of multiple academic institutions into doctoral programs and 49 master’s degrees. Already, Paris-Saclay is home to 65,000 students and 10,000 research professionals. 

The prevailing concentration of research talent reflects the fact that the University of Paris-Saclay builds on existing institutional assets, including one of France’s most prestigious science and technology universities (École Polytechnique), the national atomic energy commission, and the National Center for Scientific Research. The addition of universities like École Centrale Paris, ENS Cachan, and several ParisTech schools from other parts of the Île-de-France region effectively doubles down on this geography. As our colleagues Bruce Katz and Julie Wagner have documented in their research, strategies that co-locate public labs, universities, and large and small companies recognize that innovation demands the cross-fertilization of knowledge and capacities across institutions.

Firms are responding favorably to this offer at Paris-Saclay. Major companies are locating within the development, anchoring five priority sectors: energy (EDF, GE), ICT (Nokia, HP, Sun Microsystem), mobility (Renault, PSA), health (Sanofi, GE Health Care), and aerospace (SAFRAN, Thalés, Dassault System).

Publicly and privately run incubators and accelerators dot the landscape to complement these multinational anchors. We visited IncubAlliance, a local incubator, where Andrei Klochko, a student from École Polytechnique, pitched his compressed energy storage technology. One can imagine hundreds of young entrepreneurs in this mold yielding the breakthroughs that will position the Paris region at the vanguard of Europe’s innovation system.

Yet the University of Paris-Saclay is very much an unfinished vision. Much of the development is still empty fields, and Line 18 will not be finished until 2024. While creating vibrant spaces is a core goal of the new development, Paris-Saclay’s suburban feel may not excite footloose talent in the ways central Paris can.

Still, when asked whether he’d rather be in central Paris, Klochko responded that he’ll live wherever his business has the best chance of success. He studies at École Polytechnique, tests his products at the research lab nearby, and draws on supports from IncubAlliance. For now, then, that’s in Paris-Saclay.

      

 

 

Instead, those left with the task of carrying out the plan’s tactics have to compete for funding. The competition may not be explicit, but export and foreign direct investment (FDI) strategies are new, and therefore ultimately bear the burden of proving that they deliver as much value as established economic development priorities like business attraction or regional marketing. Increasingly, the programs with impact most clearly demonstrated by quantitative performance metrics tend to win out. (Many of the metrics used in economic development are highly suspect, but that is a topic we will address later.)

While global trade and investment efforts are certainly not unique in being under pressure to quantify their impact, they are uniquely threatened by this expectation. The reason, quite simply, is that the basic data that cities need to produce reliable performance metrics for exports and FDI do not exist.

For the metro areas Brookings has worked with, performance measurement discussions boil down to two questions. First, how will they know whether focusing on exports and FDI is making a difference on overall regional outcomes? Second, how will they determine which tactics are most effectively contributing to these outcomes?

Efforts to answer the first question run into dead ends, because there is no accurate or comprehensive source of data at the metro level. Federal agencies produce almost all data on global economic activity, but they are not designed to measure what matters to metro areas. Federal export data, for example, track goods exports based on the port from which they are shipped overseas, which bears little relation to where exported goods are actually produced (the primary concern of metro areas). And federal sources provide no sub-state data on either services exports or FDI. This isn’t likely to change, as federal statistical agencies are experiencing cuts and are highly sensitive to burdening companies with mandatory reporting requirements. Brookings has partially filled these gaps, but its export data are estimates, not actual counts, and its metro FDI data only goes through 2011. Neither was intended to support annual performance measurement.

Answers to the second question are equally elusive. Evaluating the impact of programs that provide direct assistance to companies would require economic development organizations (EDOs) to gather their own data on a firm-by-firm basis. In some cases, this is theoretically possible—certain aspects of FDI can be closely tracked and firms in export assistance programs could be required to submit data. In practice, however, it’s usually impossible. Acquiring and managing such data is highly labor intensive and far beyond the research capacity of most EDOs. Metro areas have also found that some basic export data doesn’t exist because firms don’t track it themselves. And federal and state export assistance centers often can’t share data due to confidentiality concerns or stop tracking results after a company’s first export sale.

These data issues have been a continual source of frustration. But there’s a deeper issue at play: Even if the data that EDOs have been looking for (such as export value and job creation) were available, those metrics wouldn’t capture the true impact of export and FDI strategies at either the regional or firm level.

First, at the regional level, global economic activity is almost entirely driven by a few multinational firms, whereas metro strategies are rightly focused on the middle market firms whose ability to compete globally is more dependent on external investment and assistance. Second, global engagement can make firms more competitive without having obvious external effects. For instance, firms export to leverage existing workers and assets across larger global markets, so in the short-term they may become more efficient without adding jobs or making new investments. Being acquired by a foreign multinational might benefit a firm by exposing it to new expertise, technology, and export networks, but those outcomes often aren’t accompanied by a measurable uptick in jobs or investment either, at least initially.

These data issues threaten to curtail the early and ongoing momentum of global initiatives, because resources are limited and traditional approaches to economic development have established, if flawed, performance measurement systems. That’s problematic because global efforts support higher quality jobs, provide a source of economic diversification during domestic downturns, and support broader efforts to strengthen productive regional assets. After five years of experimentation, no clear solution has emerged. But in upcoming blog posts we’ll highlight how some places are adapting, and how the issues discussed here relate to more fundamental problems with the way that economic development policies and practices are evaluated.

      

 

 

These strengths position it well to lead Chile’s path toward a more productive, technology-intensive economy that competes in global markets based on knowledge rather than raw materials. This type of economy, which fully embraces trade and foreign direct investment as a growth driver, requires the capacity to generate new ideas and process innovations, a broadly educated workforce, and sound infrastructure to connect firms and workers to each other and the rest of the world.

This report, developed as part of the Global Cities Initiative, a joint project of Brookings and JPMorgan Chase, benchmarks the Santiago Metropolitan Region against eight global peer regions based on its economic size, wealth, productivity, industrial structure, and competitiveness factors. In doing so, the report provides a global competitiveness framework for local and national leaders working to sustain the region’s prosperity. Its key findings are:

Substantial economic progress has occurred since 2000, but macroeconomic shifts present new challenges to growth. Production of goods and services in the Santiago Metropolitan Region has expanded consistently over the past 15 years. Average standards of living and labor productivity are much higher today than they were in 2000. Gains in output, GDP per capita, and output per worker outpace most of Santiago’s peer regions. But challenges remain: low job creation, slowing productivity growth in recent years, and continued high levels of income inequality. Shifts in the global economy—declining commodity prices, China’s slowing demand for Chilean exports, and the broader slowdown among its Latin American neighbors—have the potential to exacerbate these challenges. In a composite economic performance index, Santiago placed third among nine regions.

The Santiago Metropolitan Region can take advantage of changing market, technology, and demographic trends, but it must focus on the core drivers and enablers of competitiveness. A competitive region is one in which firms can compete successfully in the global economy while supporting high and rising living standards for local households. Globally competitive traded sectors, functioning innovation ecosystems, and skilled labor are the key drivers of overall productivity, employment creation, and income growth. Two enablers support these three drivers: well-connected, spatially efficient infrastructure and a reliable governance structure and business environment. The Santiago Metropolitan Region contains notable strengths and significant opportunities to better deploy these five factors to increase its global competitiveness.

1. Trade: The Santiago Metropolitan Region can leverage its specialization in business services to boost exports and foreign direct investment. With a relatively small domestic market, trade and investment must be a critical component of Santiago’s long-term economic strategy. To that end, it is encouraging that output and employment in traded sectors have grown at a faster clip than the national economy and many global peer regions. Exports have also posted superior growth rates to the national economy, led by the region’s mining and food and beverage sectors. However, several macro trends confirm that the mining sector will not continue to be the economic engine it was in the past decade, indicating the need for diversification into new tradable industries. Santiago’s status as Chile’s transportation and business services hub (it houses over 90 percent of corporate headquarters in Chile) make those sectors compelling opportunities to boost exports and foreign investment. Yet, the national services trade deficit has steadily increased over the past decade. Inward foreign direct investment flows fall in the
middle of global peers, with key sectors being communications, metals, and renewable and alternative energy. In a composite trade index, Santiago placed fifth among global peer regions.

2. Innovation: Anchored by leading research universities and a budding venture capital scene, Santiago’s innovation ecosystem could benefit from greater cooperation between universities and firms. The region’s research universities are important assets for knowledge creation and have the potential to accelerate technology transfer, but could collaborate more with the private sector to better align university research with the industrial demands of the region, and reach beyond Chile’s border to collaborate internationally with other universities and firms. Venture capital markets do find Santiago start-ups an attractive proposition. Compared to international peers, the Santiago Metropolitan Region attracts a significant amount of venture capital given its size. However, patenting rates per capita lag most global peers, indicating that Santiago’s innovation ecosystem is not yet on par with peer Asian metro areas. In a composite innovation index, Santiago placed fourth among peer regions.

3. Talent: The education levels and skills of the region’s workforce have increased substantially, but the education system must improve its quality, particularly at the primary and secondary level, while increasing access to the university level for lower-income students. Santiago has a relatively well-educated workforce, ranking in the upper tier of its peers, a defining achievement of the past couple decades. However barriers to accessing higher education persist, reducing potential productivity gains and perpetuating inequalities. Additional support to students with scarce resources, efforts to standardize training certifications, and a greater emphasis in technical skills in short supply can both increase social mobility and improve the competitiveness of the region. Additionally, effectively integrating the foreign-born population into Santiago’s labor market and social life can help solidify a steady supply of workers to maintain growth. Santiago’s relatively high quality of life offer can serve as an attractive asset in drawing international talent. In a composite talent index, Santiago placed fourth among global peer regions.

4. Infrastructure: Santiago is the clear international access point for Chile, but it must continue to upgrade its digital, housing, and transportation infrastructure. The Santiago Metropolitan Region houses most of the country’s international access points. The Comodoro Arturo Merino Benítez International Airport, while not moving the same volume of passengers as airports in peer regions, is Chile’s clear connection to the rest of the world. Freight and logistics infrastructure in Chile lags most peer countries, largely because it is not as easy to arrange international shipments in Chile as in other countries. Even with this deficiency, firms in the Santiago Metropolitan Region benefit from relatively low exporting costs. Digital connectivity—as measured by Internet download speeds—fall in the middle of global peers but adoption rates could be improved, likely through lowering the cost of Internet access. Within the region, continued population and income growth continues to increase demand for housing and transportation, necessitating new investments in both. Equally important is the long-term coordination
between housing, transportation, and land use decisions along key corridors and nodes to improve the region’s spatial efficiency. In a composite infrastructure index, Santiago ranked last among peer regions.

5. Governance: Firms benefit from a sound business and regulatory environment, but sub-national governments currently have little autonomy to steward Santiago’s economic future. The Santiago Metropolitan Region benefits from a good business and regulatory environment, reflecting Chile’s legacy of pursuing free trade, macroeconomic soundness, and regulatory transparency. Where the region lags is in its overall autonomy to determine its economic future. Chile remains a very centralized country. New reforms that enhance sub-national autonomy and flexibility can position the country’s metropolitan regions more centrally in issues of economic competitiveness. As debates unfold about the proper distribution of powers and responsibilities between central and regional governments, it is important to remember that economic development is increasingly a shared enterprise between government, the private sector, and educational and civic institutions.

      

 

 

Nevertheless, U.S. city and regional leaders should not back down on trade and global engagement. The global economy is hyperintegrated—enabled by technology, air and freight networks, and complex supply chains more widespread and faster growing than new trade agreements. Local leaders have a responsibility to help their firms and workers navigate, not ignore, the benefits and drawbacks inherent in globalization. They should continue to embrace a bottom-up competitiveness agenda that includes helping firms and institutions tap global demand and investment while arming workers with the skills to adjust to new realities.

Trade is typically discussed at the national level, but its origins and impacts are intensely local. The 100 largest metro areas—places such as Detroit, Houston, and Wichita—are at the epicenter of the global economy. Positively, these metro economies generate the bulk of the nation’s exports (86 percent), attract the vast majority of jobs from foreign direct investment (74 percent), and draw most of the foreign students investing in an American education (85 percent). These benefits result from unique pools of suppliers and skilled labor, global infrastructure networks, and higher education institutions that strengthen core industries and support jobs, often good jobs that offer a wage premium for workers.

Cities also bear the brunt of the risks of greater global integration. The recent decision by Carrier to close its production plant in Indianapolis demonstrates the cost to hundreds of well-paid blue-collar workers when firms feel the pressures of the global marketplace. Meanwhile, Carrier plans to retain engineers and marketing professionals in the city, another indication of the premium placed on high-skilled labor. New research by a team of economists led by MIT’s David Autor brings this phenomenon into sharp relief. The authors find that China’s insertion into the global trading system was disastrous for certain U.S. labor markets that specialized in manufacturing. Their notable finding was not that manufacturing jobs disappeared, but the expected movement of dislocated workers into new industries never materialized. What economists call the “adjustment costs” of trade may be much greater and longer lasting than previously theorized.

To start, cities must accept that their economies are globalizing. Barring adoption of severe isolationist policies, global integration will continue apace. Even as international trade and investment has slowed post-recession, the cross-border exchange of digital information and services has increased 45-fold since 2005.

Cities should proactively adapt to these forces and help position their workers, industries, and communities for the upsides of trade. This begins with investments in core determinants of advanced industrial competitiveness: a skilled, technically trained workforce, adoption and commercialization of new technologies, and well-connected infrastructure. For example, leaders in the Louisville-Lexington region, led by manufacturers like Toyota, created an apprenticeship program that creates a pipeline of young manufacturing workers to replace an impending wave of retirees. That program, called KY FAME, has now scaled statewide.

For the many cities that have adopted regional trade and investment strategies, that work should continue. These cities have developed deep familiarity of their local firms’ global strategies. They’ve created networks with intermediaries in foreign markets. They are more culturally sensitive and, in turn, more inclusive communities for immigrant workers and students. All that market intelligence—what we call global fluency—is preparing these regions well for the rigors of the global marketplace.

The economy is always a dynamic process of creation and destruction. Unlike presidential candidates who can toss or dodge political hot potatoes, cities and metro leaders have little choice but to confront foreign investors, plant closures, and dislocated workers. They have built the trusted networks and collaborations to create programs that help them seize the fruits of global demand and make adjustments when trade hurts. Cities have more work to do on the latter, given rising economic insecurity. But as they do, they should not close the door to global realities.