During the last couple of years there has been much discussion about debt. Is it good or not? In a family setting, common sense tell us that debt is not good. At the same time it also says that in many instances such as getting a house (or an education in some countries), it’s necessary to get into debt. For business it gets more complicated; incurring into debt or not has many variables. But what is really complex, is for a national economy. The public in general do not want their governments to get into excessive debt, in particular, to foreigners. If you have an education in economics, you know Keynes talked about it.

It’s my opinion that no matter what political orientation, politicians are not motivated to avoid debt at long term. Thus, this creates a great problems for many local, regional and national governments. Of course, this all gets very political, which by definition, ‘politics’ means how to spend our money.

Without getting very philosophical, political, technical or economic, I wondered : Are citizens happier if their countries are more in debt?

I checked real quick Wikipedia for a list of countries by external debt (public+private), and public debt by GDP. Then I compared it to the Map of Happiness. I had no idea what was the correlation going to be. I choose some countries and plot it. This of course is full of caveats, is just a quick and dirt view. I think an economists from Norway has done similar things (in a serious way), but I can’t find it now.

External debt vs. Happiness.
x = external debt (public + private) per capita in $USD; y = happiness index (from Map of Happiness)

x = public debt per GDP; y = happiness index (from Map of Happiness)

Well friends, the verdict is clear, and I had not idea it was going to be like this:

The more debt a country has, the more likely the citizens will be happier.

Bliss ignorance?

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The International Economic Development Council’s 2011 spring conference, held June 5-7, in Indianapolis, IN.

Understanding Tomorrow’s Industries Today: The Landscape of the Future.

My wife wanted to come to Indiana to visit her family, anytime in spring/summer 2011. We made it coincide so I could attend the IEDC conference, that by coincidence was taking place in Indianapolis. Unfortunately, I found that my PhD student fund for the 3 years had ran out, so I weighed if I REALLY wanted to attend to that conference, and I decided most of it was not really relevant for me, specially in the very last stage (hopefully) of my PhD. But I wanted to attend to a couple of sessions. So, after a lot of though, I decided to attend, and I openly confess my fault, I decided to crash a couple of sessions. (I’m a poor phd student ok!?). It was a little bit uncomfortable to be the only one around the conference of around 200 attendees without a name tag. I though, in case they catch me, with my Spanish accent I could always pretend I was serving water or something.

I was really happy I attended, and if you’re interested in local/regional economic development (LED), I highly encouraged to learn more about this outstanding organization. (A little advertisement to cover for my conference fee :) I would not mind to join myself.

I think there were only a couple of academics, the vast majority were practitioners of local governments, and a few were from consultancy companies.

The LED literature says that there is a big disconnect between academia and practitioners. I confirmed this when I conducted some interviews with public officials in USA and Denmark. Attending to this conference was just a big confirmation stamp of the stereotype.

University LED researchers and LED officials are two worlds apart. Almost like the astronomical bodies and the astronomers. I know it sounds ridicule, but what I’m trying to say, it’s that there is not much communication among them. Well, at least astronomers seems to admire the sky, something that LED researchers not always do.

At the conference, I performed two informal interviews to LED experts. I asked them several things, but concerning the topic I’m blogging today I asked them if they found in their sphere a disconnect from the academia. They both have certain links with the universities, but they said that they’re “in their world”, “ivory tower”, “disconnected from reality”. One explained how in her hometown “the professors in the field (usually in planning), have their network, they all come from the same prestigious university, they recruit themselves, and live by and for them. There are some younger PhD students who have more involved projects, but not the professors.”

The dislike of the people in the field for the academic research is matched if nor surpassed by the professors for the field. In Berkeley, I interviewed one prominent professor on economic geography and regional development. When I asked him about his feelings about LED, he said “Much prostitution!! Much prostitution!! (not literally) These guys will do whatever to please companies!”

Both positions are wrong and right. I belief the way forward is to combine both views. It’s true that the academic world can really suck to come up with useful things for the economic development of cities and regions. Academics much focus on concepts and discussion, but the governments cant make little use of that. In the case of more public funded universities (European), many professors have not in their agendas help cities. For the ones more based on private and quasi-public grants (US), they’re neither motivated to do the applied research on the field.

The lack of rigorous research and fluffy concepts are the the main courses in the practitioners’ menu, while professors and their phd students have endless discussions about the ingredients of the onion soup. Then we have the consultants, another amazing world, that I can not reflect upon in this post.

In one of the sessions I attended I heard this quotes from the speaker:

a) Today the world -of business creation and growth- does not depend on geography.

b) How do we train for jobs that don’t exist yet? (question posed for the organizers)
You don’t! you focus on lifelong learning, curiosity, trust, etc.

–I think it would be pretty cool to be able to write academic papers like this :) —

note: I talk about two worlds, as dichotomy, but there are actually a big scale of grays.

image via Vanity Fair

Much media reports economists saying, “the economy is going to be good”, or “the economy is going to be bad”. There is of course a relationship of the political agenda of the outlet, to have a line towards more positive or negative. I find that both of the economic predictions are mostly right. Because for some the economy does good, and for others does not really improve. And this is what I find that the media does not report it too much on it. That is: inequality.

One person who says it clearly, is Berkeley professor Robert Reich. In his predictions of the economy for 2011, he asseverated

“If you’re referring to profits of big corporations and Wall Street, next year is likely to be a good one. But if you’re referring to average American workers, far from good.”

Similar thing is happening in many places, and the media usually puts together countries, states, provinces (and rarely cities), and they say: “the economy has grown (or decreased 1%)”, but they do not say where and who wins or looses this 1% of the economy. It actually it should not be that hard to introduce some coeficients like the Gini index, or even better some type of Human Development Index. I’ve also heard in the news how Sarkozy, it’s trying to do some alternative socioeconomic indexes, “different than the Anglo-Saxon”. I think it should interesting to look at some of them.

I have also noticed that there is an increasing discussion about inequality among bloggers, not corporate outlets but even in some places like The Economist or Vanity Fair. In fact, I have recently tagged with #inequality 10 or 15 articles in my twitter.

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

“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…

Obama believes States and Cities need urgent help

I’m currently studying the city of Vallejo, California, because it is so far the biggest city of California (and I think in the USA) to have filed for bankrutcy so far. For my PhD I learn about the “do’s”, but I also have to learn about the “don’ts”, so the case of Vallejo it seems it’s a good one to look at some “don’ts”. But, it’s not only California, all across the USA, Europe and Japan, cities now are seriously struggling. Many has been said about the countries, but as Jane Jacobs and Robert Lucas clearly pointed out, the economic development and innovation does not come from the coutries, but more precisely, from the cities. So, in my opinion, we should pay more attention to the cities, even if the neo-classical economists and the different national media across the countries only look at the national level.
Unfortunately, we have had not to wait too long to start paying attention to the economy of the cities. They have been getting into trouble, and this last Friday, President Obama talking about the American cities expressed the urgency to focus on them: 

I am concerned … that the lingering economic damage left by the financial crisis we inherited has left a mounting employment crisis at the state and local level that could set back the pace of our economic recovery. Because this recession has been deeper and more painful than any in 70 years, our state and local governments face a vicious cycle. The lost jobs and foreclosed homes caused by this financial crisis have led to a dramatic decline in revenues that has provoked major cutbacks in critical services at the very time our Nation’s families need them most. Already this year, we have lost 84,000 jobs in state and local governments, a loss that was cushioned by the substantial assistance provided in the Recovery Act. And while state and local governments have already taken difficult steps to balance their budgets, if additional action is not taken hundreds of thousands of additional jobs could be lost. (….) Because the urgency is high—many school districts, cities and states are already being forced to make these layoffs,”

(Barack Obama, 12 June 2010)

Then according to the media he’s asking for $50 Billion in this emergency fund. Something that of course many policy makers can hardly support, not so much because of the 13 trillion debt the USA already has, but because it’s an election year and this looks a risky move. Obama in order to get the monies he continues, a) “I have called for a three year freeze in non-security discretionary spending”, b) put a “a fee on the largest Wall Street firms”, and c) put “agency incentives to identify ways to save money”.

For the first, I think that’s fantastic, although the main chunk of the discretionary budget is the military, so if this is not even discussed to be frozen then it does not go too far. In fact I think the US should not have a freeze but to reduce the whole thing. The question is, Does the American people prefer to keep having a huge military force or teachers in their towns and cities? The fact is that the majority of the people believe that education should be the priority, but the choice it’s not that easy, even if the US military budget sums more than the next 16 countries altogether. For the second measure, it seems that the majority of the people won’t have any problem on taxing the big ones in Wall Street. I mean, it’s like one of the wildest dreams of the middle and poor class. The third sounds like empty words, that I can not even say it is a good try.

Anyways, I don’t want to get into US politics. The main point here it’s not if they’re going to be able to do this, but to say that it seems that the US Government is realizing about the importance of the state and local level. From my view, this is very positive, even if it might be too late. They should have let bankrupt some companies, but cities can not and should not go bankrupt.

p.s. Having said that, I of course have to acknowledge that leading-Republican American guys really think Obama wants sincerely to destroy the nation, as well as the leading-Democrats though Bush wanted the same.