Yesterday there was an article about Vallejo in the Financial Times. It says:

For an image of the future that is guaranteed to chill US civic leaders and bondholders alike, there is no better place to look than among the potholed streets and boarded-up houses that litter the Californian city of Vallejo.

It made me feel good that last year I went to the city to make a case study about it. I stated at Univ. of California, Berkeley during the whole Spring semester 2010. A few days ago I finished writing a paper called “VALLEJO, CALIFORNIA. FROM THE FRINGES OF THE CITY, A CASE FOR THE ‘CITY REGION SYSTEM OF SURVIVAL’. I wrote it to present it at the DIME-DRUID ACADEMY Winter Conference 2011, this week.

This paper is very heterodox, and is a paper on progress. The main purpose of it was to make a summary of theories I learned about Local Economic Development at the Berkeley libraries. I then tried to connect the case of this city (or district) of the San Francisco Bay Area, and its significance to entrepreneurship and innovation policy. Innovation from a broad sense, for the ones that now what I’m talking about.

I got much help from the locals of Vallejo, and one of them, the editor of the popular Vallejo Independent Bulletin, asked me to send him a copy of the article when I would finished it. Keeping my word I sent it to him, and he has published it online.

My article at the Vallejo Independent Bulletin

I am grateful he did it, because I got a few comments from the citizens. This made me realize that my ideas are still quite confusing. So I wrote a comment. It seems it has an anti-spam feature, I told the editor. For now I’ll put it here.

Since I read the comments of Ab and SomeoneElse on my paper about Vallejo and the Bay Area, I have been thinking a lot.

I am grateful for the comments. In particular, because I have realized that I have not made a good job to express my ideas. This is hard, as English is not my native language. But also because of the internal fight I have had. I am a PhD student specializing in local economic development, but it is the case of Vallejo that has made me changed many of my preconceptions. Now I would like to comment on the comments.

Ab says: -“the last line is spont on”- and then quotes me: -“Vallejo … end up like many cities in third world countries, where a few (police and firefighters?) live in affluence while the vast majority of citizens live and die in misery”- [police and firefighters added by Ab].

There are two things. First it should be understood that even though Vallejo has been a city, since the 19th century, I refer in the paper as a “district” of the city-region of the Bay Area. I know this may sound weird for any local (of the Bay Area), but coming from abroad I can clearly see that the Bay Area is a large metropolitan area, highly connected in its economic geography.

The second thing is that I don’t necessarily say that police and firefighters are the few, or the elite of Vallejo, nor of course the elite of the city-region. True, they are an interest group, and as I referenced in the paper they have a well known “symbiotic relationship” with the political power of the city. But going back to my first point, one has to look beyond the city limits of Vallejo. Making $150,000 as a safety employee it’s certainly high, but what about the bankers and real estate leaders who make 10 times or more, in the different districts of the Bay Area?. This is probably a stupid comparison, but what about the profits of a company of the city region, like Apple making 100,000 times more. But still, what is their responsibility towards their neighbors?

“Someone Else” points out we need to think outside the box. I’ll try to do it. There is so much anger against the public safety employees, and probably with a reason. But this is not going to solve the problem of Vallejo. Thinking outside the box… What about a Bay Area police? After all, the criminals operate in all the Bay Area, not only in one particular city. I am NOT an expert in safety, but I see that the New York City Police Department, covers 8 million people, more than the 7 million of the Bay Area. The Bay Area has already the BART police, that would fall inside the Bay Area Police. The 9 counties police departments (sheriffs), a heritage from a bygone era could also be reduced. I repeat, I have no idea about this field. But as an economist I would think that cities (and their tax payers) would avoid the “competition” among them. And that is the idea: work more towards collaboration, than competition.

Of course, safety should not be the only thing. In fact should be the least. The most important things would be towards, education. I had the chance to be in UC Berkeley, one of the most amazing universities in the world. Also visited friends in Stanford. Great places. I know all these ideas have been said many times before, even from the former Governor (I still can’t believe people voted for an European actor). But there should be more mechanisms to get more funding for the rest of more ordinary higher education. However, what I think is of really concern, is the high inequality in the school districts across the Bay Area. In Europe we have many problems, don’t get me wrong! but with the exception of a few countries (like UK), every child has the same amount of money allocated for education, regardless in which neighborhood was born. There is an urgent need for a more cohesive education across the Bay Area.

More cohesiveness should be as well for access to justice, healthcare, transportation, innovation and entrepreneurship policy, etc in the Bay Area. That’s what I am trying to say in the paper. Because the different parts of the city region are so interdependent.

The same goes to having X or Y Mayor. Sure, many question if Davis should be the Mayor. But I think it does not matter if X or Y, or Z would be Mayors. Neither if Vallejo hires the best consultants, or the best City Manager. My hypothesis is that it does not matter who is in the leadership of Vallejo. The city will not survive.

Unless, they realize that: 1) Vallejo is dependent of the city-region. (This does not mean surrender). 2) There is need of active coordination, at local (Vallejo) and city-region level. That is stop fighting at local and inter-local level, and start collaborating.

If not, and now I clarify, the city region of San Francisco, will become more and more as third world country, “where a few live in affluence while the vast majority of citizens live and die in misery.”. Many in the elite, as the mentioned Andy Grove in the paper, have noticed it.

The other day I got this through my friend Jan, who just recently finished his PhD. This is a video animation of a presentation of Steven Johnson, based on his new book Where Good Ideas Come From: The Natural History of Innovation.

He explains the idea of how meeting places where such a great place for innovation, back in the day (and today), and all the time it took to develop ideas. For sure, there were people who talk more, and people who would listen more. But all good benefited. You could go to the table that shares your interests, once in a while. I think that is the same principle in twitter.

I have to admit that my twitter log, (which once in a while I copy in a doc for easier findings), help me a lot to get ideas to include in papers. Therefore I’m very grateful to this tool. It comes a lot of inspiration, and try to keep the people I follow to a minimum, to restrict it for my work. (I don’t know how people can follow more than 150 people, no offense, but there is an optimization point.) Anyways, the thing is that twitter can help to exchange ideas, unfortunately it does not leave too much room for discussion.

I love these animations. Another good one is David Harvey’s (if you don’t know him, is the most quoted geographer), “The Crisis of Capitalism”.

Along other projects, I have been working on a paper (so far) titled: “Geography and the Entrepreneurial Profile
– A Study of Rural and Urban Populations in Denmark”. It is coauthored with Kristian Nielsen, a great economist from the Business Department. He’s like me, a PhD candidate, but he has many more skills, including the crucial econometric and statistical analysis. We have done a paper based on a survey conducted to more than 2000 people, of which 3/4 were successful entrepreneurs and the other 1/4 were employees.

Today there is a huge debate about the importance of living in the city vs. living in the country and its influence in entrepreneurship. We wanted to see if they had any difference in their networks, identity and start-up motivation. More or less the question we rise is: Where do you have more differences: between the urban and rural population, or the entrepreneurs and employees (regardless of geography)?. We have asked this in two conferences we have presented the paper the DRUID and the AAG, and answers are split. What do you think?

At the end of the paper, we wrote a fictional story, but based on true research! to summarize our findings. Here I share with you the story, which probably will not be in the paper for space and copyright reasons. The paper? Soon in your best journal :) If you want to give us some feedback (before we send it to the journal!) we could send it to you, I guess.

The Story

To illustrate some of our main findings regarding entrepreneurs we will present a simple example. – Imagine you have two friends, Ruben and Urban. Ruben is from a rural area, and Urban is from a big city. You talk with each one of them once in a while. You are an equally important friend for each one of them, since they have around the same number of friends. Ruben, earned a three-year technical degree and Urban got a university degree. When you hang out with Urban and his friends you talk about ideas for businesses. He is a very creative guy. – Some time passes – Urban is about to get married, and Ruben, although slightly younger, already has. Interestingly, they both started a business in the service sector. Urban proposed that you and another friend join him in his business adventure. You did not join. Urban borrowed some money from family and friends. – A few more years pass, and both of your friends have become successful entrepreneurs – By reading the results of this paper, you know that you are equally as likely to receive a call from either of them to have a drink. But you are more likely to have Urban ask you for help, with for instance, a computer problem. If you do not help him, you should not worry a lot; he’s the type of person who will soon call an IT professional or another friend. It’s not that Ruben won’t have a problem with the computer, but he would not bother you about it. Ruben would probably ended up spending a few days fixing it himself.

This was a didactic example based on some of our results, overemphasizing the main differences. The differences between age, marriage, and education of these characters can probably be explained by socio-economic and cultural values for each region. Whether this is true for the difference in personal traits and work values could be important to further investigate. Also, the reason for the different use of networks is unclear, however, this behavior is probably related to geographical proximity and/or agglomeration issues. It seems that, while much has changed over the last centuries, in today’s economy the rural entrepreneurs still share a certain resemblance to the rural tradition of surviving without division of labour. This behavior was pointed out in the introduction, with the examples by Adam Smith and the ancient Greeks.

Another main finding of our research is that entrepreneurs are similar, regardless of geography, when compared to wage earners. Going back to the fictional case of the story of our two friends; – The most interesting thing happens the day you introduce Ruben and Urban. They start talking about their businesses, and get along very well. They talked about their employees, and complain about the routine problems of their providers, customers and government bureaucrats. However, they both agree on how much they like having the freedom of being their own boss. They exchange cards and comment on how many things they have in common. – And they are right; these guys have always been one of a kind.

L.C. Freire-Gibb and K. Nielsen, forthcoming

Every time I get into a second hand book I always find something ‘super interesting’. My wife picks on me about it. Earlier this semester I found the book of The Prince [Translated by Daniel Donno. Bantam Classic. 2003], for 1 dollar. I already read some parts but now I want to read the whole thing. I liked most of it, and it is true, that he is not that “Machiavellian”, as the people say. Come on! he was born in 1469! Governments were all about realism.

Because he was leaving in near poverty, he was trying to find a position back in the government. He had to convince the guys in power that, he was a good and useful guy, and even if they tortured him before!

I transcribed the last paragraph of the Chapter 21, ‘What a Prince Must Do to Be Esteemed’. Here it is Machiavelli discussing entrepreneurship policy, local economic development, “cultural economy”, and the importance of having a charismatic/catalystic local government.

For the ones unfamiliar with the term, a prince, was what he was referring to the man in power of the Italian city-states. And the Lorenzo de Medici, which he (or one of his friends) later hired Niccolo.

A prince should also demonstrate that he loves talent by supporting men of ability and by honoring those who excel in each craft. Moreover, he ought to encourage his citizens peaceably to pursue their affairs, whether in trade, in agriculture, or in any other human activity, so that no one will hesitate to improve his possessions for fear that they will be taken from him, an no one will hesitate to open a new avenue of trade for fear of taxes. Instead, the prince ought to be ready to reward those who do these things and those who seek out ways of enriching their city or state. In addition to all this, at the appropriate time of year, he ought to keep the people occupied with festivals and spectacles; and since every city is divided into guilds or other corporate bodies, he ought to take these into account and assemble with them on occasions, thus giving proof of his affability and munificence, yet never failing to beat the dignity of his position in mind, for this must never be lacking.

Niccolò Machiavelli, 1513

In his grave it says: TANTO NOMINI NULLUM PAR ELOGIUM (No eulogy would be adequate to praise so great a name)

Books recently read

July 20, 2010

Books I’m about to return to the library (actually 4 different ones) on the Berkeley campus:

  • Goodman, Robert, (1979) The last entrepreneurs : America’s regional wars for jobs and dollars [In the book he refers to the local and state government workers, and how they act as bad entrepreneurs. I quoted him here once talking about energy]
  • Richard D. Bingham, Robert Mier (1993) Theories of Local Economic Development: Perspectives from Across the Disciplines. [I started reading their books in 2006, and I love their different perspectives. When I grow up I want to be like them]
  • B. Joseph Pine and James H. Gilmore (1999) The Experience Economy: Work Is Theater & Every Business a Stage [If you want to know more about this, see my slides about it]
  • Daniel Hjorth and Monika Kostera (2007) Entrepreneurship and the Experience Economy [Their point of view on “The Rise of the Experience Economy”]
  • Norman Walzer (2009) Entrepreneurship and Local Economic Development. [Very good book, with out of the box ideas. Recommended reading for LED specialists]
  • Henri L. F. De Groot, Peter Nijkamp, Roger R. Strough, and Roger Stough (2004) Entrepreneurship and Regional Economic Development: A Spatial Perspective [It includes 25 contributors, including my affiliated supervisor Phil Cooke. It has a focus on quant research]
  • Jane Jacobs (1983) Systems of Survival: A Dialogue on the Moral Foundations of Commerce and Politics. [She should have got the Nobel Prize in Economics, even if she was not an economist. Here I comment on one of her books.]
  • Jeffrey Scott Luke, Curtis Ventriss, Betty Jane Reed, and Christine Reed (1988) Managing Economic Development: A Guide to State and Local Leadership Strategies (Jossey Bass Public Administration Series) [This book is made by these four authors. I recently commented on this book]

  • Richard Walker (2007) The Country in the City: The Greening of the San Francisco Bay Area [This is from my advisor here at the Dept. of Geography in Berkeley. He recommended to me, in order to learn more about the efforts that the Bay Area have had on trying to promote a more cohesive regional government. Too bad they failed. See more on chapter 6. The book explains why San Francisco has so many parks (relatively) and nature around. I theorize this makes it different and attracts people. Excuse, DW, to mention Richard Florida, but he would say that these outdoor amenities attract the creative class. And I think it’s right in this one. It’s a good reminder for cities to keep green places.]

Ok, I admit it, I have not read the whole books. But I tried to find the useful things for my project and papers I’m working on now.

“Effective economic development strategies must be customed-designed to meet the unique strengths and opportunities of local and state economies”.

Luke, Ventriss, Reed & Reed argue on page 175, as the editors of the book Managing Economic Development – A guide to State and Local Leadership Strategies (1988). My first impression when I read this, is the striking resemblance of what I must have written a few years ago for a paper conference or project. That is, one should be careful with the ‘one size fits all’ approach than many economists have. I completely agreed with that. That is… agreed. Because now I’m kind of skeptical of this local oriented approach that treats all communities if they were in the same line of the race track.  I keep reasoning in my head:

For example, in the case of Vallejo, they can make the best possible study looking at their financing, regulation, infrastructure, public services, human capital, etc… to tackle their Local Economic Development (as the mentioned book does in chapter 9).  However, no  matter what these cities do, their options will be very limited because theyir economy is quite dependent on the city-region (the San Francisco Bay Area), State of California, etc.

I think to my self that reviewing this book is not going to be very helpful. I keep reading;

“ (…) As a result of the growing economic interdependence, there has been a significant decline in state and local governments’ capacities to unilaterally develop an implement economic development policies and programs. No one government department or individual public manager can effectively act single handedly. This situation forces the invention of new collaborative mechanisms and collective development strategies.
Successful economic development strategies not only precipitate from an intergovernmental contest of cities, counties, COG’s (Council of Governnments), and state and federal agencies, but also emerge from intersectoral collaboration between the public, private, and non profit sectors. Each sector depends on the vitality of the other (…)”

This book is better that I though!, this are so much in line with one of my working papers!. Let’s continue.

“In such an interconnected policy context, a new type of public leadership is required – catalytic leadership. Chapter Eleven examines this trend and shows how, unlike charismatic leadership, which rallies people around the leader’s vision, catalytic leadership facilitates cooperation among a group of leaders and stimulates the pursuit of a goal that is created collectively by the group”.

A pretty nice book, with good complementary articles.

Again, I remembered that one should never judge something for the first paragraphs one reads. Specially from old fellows…

I believe that the engine of economic life is in the cities. Of course, it is important the national economic policy, but there probably is too much of a bias towards the national level, this is true for academics and policy makers.

I think this bias in the US comes in part after the WWII, the Manhattan Project and Annevar Bush (he basically asked to brutally fund his Ivy League schools to bring national victory through science – he was a very intelligent person), and the traditional nationalistic tendencies of the European countries (I’ll put also a little blame to the Marshall Project for funding them at national level).But anyways, the fact is a professor has more chances to succeed if he focused on the national level, (or even regional level in the case of Wales, Catalonia or Basque Country for their political-economic system – is in it a coincidence that the Regional, instead of National System of Innovation, was created in those places?), instead of cities. Also the national media plays an important role into tell citizens, that they’re not citizens of a city, but of a country. It was not until my research in Latin America for my Master thesis that I started realizing of the importance of the city-region, instead of the national level.

However, sometimes I can not avoid to think about the policies at the national-global level. Today I would like to comment on how screwed up can be the monetary policies of the Central Banks or Federal Reserve during the last decade.

I remember a decade ago, all the pressure that the Euro Zone was receiving to lower the interest rates. I remember all the economic press on how stupid the Euro was going to be with such a high interest rate. For many years Frankfurt, had to defend itself. The idea was fighting inflation and control the economy. After all, Japan had 0% interest rate for almost 15 years, and this did not help them. The American economy was growing well, and everyone though it was because of quasi-god Greenspan, who so smartly had the interest rates low.

What happen when we have low interest rates? Nobody wants to save. If you put the money in the bank they will give you a 0,5% a year, with an inflation of 2% a year, this is loosing your money. You have to spend it, as fast as you can. And yeah, consumption… and the economy grows… Fantastics isn’t? (True, much better than in the 1980s, with double digit rates.)

Wall Street also loves the idea of lower interests, for two reasons. First, because people with savings instead of putting in their savings account in the bank, they will put it in the stock market, you can make up to 10% a year!! without any effort!!. Second, the investment firms they can play, yeah play, easier with cheap money.

There is someone else who likes a low interest rate: The US government. And this is for two reasons. First because they can do all the projects they want printing money, instead of having to tax the people. Something that of course it’s against the “freedom” of the American people. Second, because they borrow so much money to foreigners (especially Asian), if they raise their interest rates, then they have to pay them back more Billions, (or is it Trillions?) in interest.

One of my heros, or one of my former heroes?

Me with the Krugman's name tag, right after his speech at the American Association of Geographers in DC last April

So, is it a good idea to low interest rates in the face of deficits and high unemployment?. This question is highly relevant in 2010. Here it is Nobel Prize in Economics, Dr. Paul Krugman answering:

“it is quite possible to reduce the deficit and increase employment at the same time. All you need to do is cut interest rates, so that private spending takes up the slack” (Krugman, 1998; The Accidental Theorist, p. 37)

This is found in the Chapter “Unmitigated Gauls: Liberte, Egalite, Inanite” in which Krugman bashes the French for maintaining relatively high interest rates. Many Anglos, (German and Spaniards too) think that one can not go wrong criticizing the French, but I have to admit that they were not that wrong, and their influence to have the ECB maintain realistic interest rates. Even though finally after all the pressure, they took it almost as low as the Fed. Which was a bad decision in my opinion.

Looking at the statement of Krugman, sounds pretty ridicule today. Yes, we have to give him that this was after the 1990s US economic growth, but are these articial low interest rates the cause of this? (hint: look at the cities), Did not these low rates contributed to the dot.com bubble? Are not these artificial interest rates the trigger of the today’s housing bubble & bust? Did they not greatly affect  the financial mess in which we are? Did not the low rates helped governments, firms and families got into a huge amounts of debt? With all my regret I have to say, yes, yes, yes, yes and freaking yes.

Yeah, Krugman and others “foresaw” the housing bubble when it was in its last throats, but that was not that hard. Heck, I myself tried to convince all my family and friends to don’t buy an overpriced house!!

Yesterday Krugman, he kept saying how wise it was to keep interest rates low. He says

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. (Krugman, The Third Depression, June 27, 2010)

This time I agree with him. That is Economic 101, from the textbooks he writes! That is when the economy is slow keep interest rates low. But WHY, WHY by the end of the 1990s??

Having expressed all these things, I have to say that I really respect and admire Krugman. Specially for stand against many of the Bush policies and supply-side economics (I think now they go by the name of Tea Party :), and the academic field for his proposition in geographical economics, importance of the cities, and his efforts to bring together Economists and Geographers. And of course because his theories convinced the Swedes to give him that golden medal :)

 

I believe that the engine of economic life is in the cities. Of course, it is important the national economic policy, but there probably is too much of a bias towards the national level, this is true for academics and policy makers. I think this bias in the US comes after the WWII, the Manhattan Project and Vannevar Bush (he basically asked to brutally fund his Ivy League schools to bring national victory through science – he was a very intelligent person), and the traditional nationalistic tendencies of the European countries (I’ll put also a little blame to the Marshall Project for funding them at national level). But anyways, the fact is a professor has more chances to succeed if he focused on the national level, (or even regional level in the case of Wales, Catalonia or Basque Country for their political-economic system – is in it a coincidence that the Regional, instead of National System of Innovation, was created in those places?), instead of cities. Also the national media plays an important role into tell citizens, that they’re not citizens of a city, but of a country. It was not until my research in Latin America for my Master thesis that I started realizing of the importance of the city-region, instead of the national level.

However, sometimes I can not avoid to think about the policies at the national-global level. Today I would like to comment on how screwed up can be the monetary policies of the Central Banks or Federal Reserve during the last decade.

I remember a decade ago, all the pressure that the Euro Zone was receiving to lower the interest rates. I remember all the economic press on how stupid the Euro was going to be with such a high interest rate. For many years Frankfurt, had to defend itself. The idea was fighting inflation and control the economy. After all, Japan had 0% interest rate for almost 15 years, and this did not help them. The American economy was growing well, and everyone though it was because of quasi-god Greenspan, who so smartly had the interest rates low.

What happen when we have low interest rates? Nobody wants to save. If you put the money in the bank they will give you a 0,5% a year, with an inflation of 2% a year, this is loosing your money. You have to spend it, as fast as you can. And yeah, consumption… and the economy grows… Fantastics isn’t? (True much better than in the 1980s, with double digit rates.)

Wall Street also loves the idea of lower intererest, for two reasons. First, beacuse people with savings instead of puting in their savings account in the bank, they will put it in the stock market, you can make up to 10% a year!! without any effort!!. Second, the investment firms they can play, yeah play, easier with cheap money.

There is someone else who likes a low interest rate: The US government. And this is for two reasons. First because they can do all the projects they want printing money, instead of having to tax the people. Something that of course it’s against the “freedom” of the American people. Second, because they borrow so much money to foreigners (especially Asian), if they raise their interest rates, then they have to pay them back more Billions, (or is it Trillions?) in interest.

So, is it a good idea to low interest rates in the face of deficits and high unemployment?. This question is highly relevant in 2010. Here it is Nobel Prize in Economics, Dr. Paul Krugman answering:

“it is quite possible to reduce the deficit and increase employment at the same time. All you need to do is cut interest rates, so that private spending takes up the slack” (Krugman, 1998; The Accidental Theorist, p. 37)

This is found in the Chapter “Unmitigated Gauls: Liberte, Egalite, Inanite” in which Krugman bashes the French for maintaining relatively high interest rates. Many Anglos, (German and Spaniards too) will think that one can not go wrong criticizing the French, but I have to admit that they were not that wrong, and their influence to have the ECB maintain realistic interest rates. Even though finally after all the pressure, they took it almost as low as the Fed. Which was a bad decision in my opinion.

Looking at the statement of Krugman, sounds pretty ridicule today. Yes, we have to give him that this was after the 1990s US economic growth, but are these articial low interest rates the cause of this? (hint: look at the cities), Was not this low rates the cause of the dot.com bubble? Are not these artificial interest rates the trigger of the today’s housing bubble? Did they not greatly affect the financial mess in which we are? Did not the low rates helped governments, firms and families into into a huge amounts of debt? With all my regret I have to say, yes, yes, yes, yes and freaking yes.

Yeah, Krugman and others “foresaw” the housing bubble when it was in its last throats, but that was not that hard. Heck, I tried to convince all my family and friends to don’t buy an overpriced house!. It was not until yesterday (literally) that I read Krugman saying that the G-20 should consider rise interest rates. (I guess the only one in favor would be the Chinesse economists who always take the wrong decisions against the mainstream – please note irony)

Having expressed all these things, I have to say that I really respect and admire Krugman. Specially for stand against many of the Bush policies and supply-side economics (I think now they go by the name of Tea Party :), and the academic field for his proposition in geographical economics, importance of the cities, and his efforts to bring together Economists and Geographers. And of course because his theories convinced the Swedes to give him that golden medal :)