22 July 2005

"The Creative Class" Considered: Part I

Richard Florida, a Pittsburg sociologist, published a book a year or two ago called "The Rise of the Creative Class", which I'm reading now. The book isn't terribly slick in its presentation, and there are significant methodological criticisms to be leveled at the way the book makes its argument. I'll get to those later, but in my opinion, none of them get in the way of the really revoluntionary ideas of the book or the idea. To focus on the negative is to miss the point. There are plenty of academic treatises written each year that are clumsy, but few have at their core a different worldview for approaching a wide variety of issues with explosive implications for policy makers. Florida's book does that, which is why I'm reading it, and which is why every liberal should.

Allow me to sum up the big picture points:

(1) Economic growth does not happen uniformly throughout the economy, instead there are centers of rapid growth and centers of stagnation.
(2) Centers of rapid growth have certain distinguishing features that distinguish them from centers of stagnation. Many of these important distinguishing features illustrate an area's values and culture, as opposed to its economic characteristics.
(3) Economic growth in today's economy is driven by talented people, not wealth. Wealth to finance projects migrates to talented people from historic financial centers. Russia inherited the factories, the United States got the scientists, and history tells us which was more important for economic growth.
(4) Non-economic features of centers of growth are important because they permit those centers to attract talented people and create environments in which talented people can thrive. Talented people actively seek out certain kinds of environments and avoid others.
(5) Talented people thrive in environments that are tolerant and embrace diversity and are culturally rich. In contrast, the socially cohesive communities which Professor Putnam bemoans the demise of in "Bowling Alone" have great amounts of "social capital", but "social capital" turn out to demand conformity which squelches economic growth by preventing talented people from thriving.
(6) Rapid economic growth closely accompanies growing income inequality. While the "Creative Class" flourishes, the sectors of the economy that provide personal services to members of this class, often a low skill, low reward sector of the economy (restaurants and house keeping, for example) also grows. Meanwhile agriculture and traditional goods producing mainstays of the economy are declining in economic importance for their own reasons.
(7) Feeding into the kinds of environments that attract the new "Creative Class", is a strong desire by its members to focus on non-economic goals in life like autonomy, challenge, security and individuality.

Why are these ideas a radical change (not all of which are necessarily expressed in just these terms by Florida himself)?

The tax code, many state and local governments trying to create economic growth in their areas, and policy makers generally, often try to promote economic growth primarily by favoring capital investment in things like plant and equipment. Counties try to lure factories with tax breaks and subsidies. The federal government uses tax breaks like accellerated depreciation and low rates of taxation on capital gains to encourage more savings and investment, particularly in plant and equipment and other capital assets.

The Creative Class premise is that this is fundamentally the wrong way to go about building economic growth. Cities with a rich cultural life and diverse vibrant population with a high concentration of creative class people don't have to offer tax breaks to attract businesses. Instead, busineses come to them because they provide a good place for Creative Class members who drive economic growth to live and provide a good place to find top notch employees, and networks that understand how to help emerging business ideas. Cities that thrive pass gay rights ordinances and build cultural centers, rather than offering tax breaks to industrial corporations looking to build new factories.

Likewise, the places we should be investing money to promote economic growth is in education, not in plant and equipment.

And, immigration of talented people (especially members of the "Creative Class") is a major driver of economic growth which should be encouraged vigorously, instead of being feared. Rather than carefully limiting H1-B visas, a Creative Class approach to economic growth argues, we should offer an unlimited supply of lawful permanent residency admissions to anyone who could possibly qualify for an H1-B visa under the current regime and to their families. The more skilled professionals the nation has (even if there are actually already people in the U.S. who could do the job) the better.

In short, if Richard Florida is basically right, and conventional macroeconomic theories of growth oriented around capital investment that drive most economic growth policies in this country are basically wrong, then the Democratic party agenda, and not the Republican one, is by far superior at making our economy grow, and policy should be revised to reflect the facts about what makes growth happen.

This isn't the whole story, and is neither a comprehensive review, nor a careful critque (some of that will come in later parts of this series), but this is the place to start the discussion.

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