Last week, the US Republican Party held an extraordinary convention in Cleveland, an old rustbelt manufacturing town. I say extraordinary because I guess you have to be American to understand how grown adults can systematically humiliate themselves for several days with the rest of the world looking on wondering WTF was going on! Anyway, just down the road from Cleveland is Akron, Ohio, which is being held out as a model for the new era of prosperity in advanced nations. I caution against believing that hypothesis. It was proposed in a book I have just finished – The Smartest Places on Earth – written by two Dutch writers (published 2016). It carried the subtitle “Why Rustbelts are the Emerging Hotspots of Global Innovation”. I do not recommend anyone purchase it even though it is getting rave reviews around the place. I see it as a sort of replay of the 1990s ‘New Regionalism’ mania that emerged as part of the Third Way movement, which the now discredited Tony Blair promoted as the entrepreneurial solution to turn regions into sub-national export centres to replace the ‘nation state’, that had been (according to the narrative) rendered powerless and irrelevant by globalisation. The book introduces the notion of the “Brainbelt”, which the authors claim are revitalising the “former rustbelt areas” and “bringing new competitiveness to the United States and Europe” – a sort of counter-strategy to foil the jobs lost to the low-cost nations such as China and the Asian economies in general. The problem is that the growth strategy seems to leave the worker behind!



It is clear that one of the ill effects of shifting production locations as global capitalism has evolved have been the old ‘rust belts’, which were previously the growth engines of many advanced nations.

Driven by massive investments in labour intensive production processes and a good supply of labour made possible, in part, by immigration (often forgotten by those now promoting anti-migration narratives), these industrial regions created well-paid jobs and vibrant communities, which helped to reduce income inequalities.

However, as this Fairfax article (July 25, 2015) – Donald Trump may be ignorant but he has his finger on the pulse – noted, there is now a “widespread sense of economic anxiety across the US”.

The Brexit vote would suggest that the anxiety is not confined to the US.

We read that:

Globalisation and technology, they argue, have undercut the earnings and job security of blue-collar America. But the pathologies they suffer from go much deeper than economics. Since the 1980s, divorce, crime, suicide and drug-use rates have risen dramatically among the white lower class. The upshot is that although widening socio-economic inequality is opening ever more opportunities for the youth of the affluent, it’s making it ever harder for the youth of those left behind. And although capitalism has improved living standards immeasurably across the world, it has also created losers: their numbers are growing in the US and their leaders must find ways to ameliorate their legitimate concerns.

The article proposes that this is what is driving support from the ridiculous Donald J. Trump. And, with Hilary Clinton’s decision to enlist a neo-liberal Wall Street sympathiser (Kaine) as her running mate, I hope Trump’s support remains. At least if he is elected there might be some interesting dynamics to promote a progressive politics coming from the Democrats.

But I acknowledge that the US voters are caught between the devil and the deep blue sea!

The story line quoted above about globalisation and the losers is a forlorn one – of despair – of lives being passed by with no real end in sight.

The book The Smartest Places on Earth takes the same starting point but offers a hopeful future – of smart manufacturing to revitalise these languishing communities and regions.

Deep skepticism must be deployed when cutting through the ideas in the book. For, on the one hand, the ideas are interesting and should appeal to progressives who bemoan the loss of skills and the decline of regions.

But, on the other hand, it is too easy to get caught up in the futurism and ignore the realities.

The authors conduct a sort of inductive, world tour of regions and were taken by comments by Asian industrialists (in 2012) that they were “facing much stronger American competition again” from R&D enhanced companies who have reached a point where they can “easily squeeze” the profitability of the large Asian manufacturers.

They posed the question:

Could it be that developed countries have developed an advantage in design and manufacturing that worried the low-cost producers in Asia?

In their travels, studying various regional initiatives (such as the Eindhoven campus of Phillips), they concluded that new forms of collaboration between companies was producing the “smartest places on earth” and contradicting the perceived wisdom that globalisation was hollowing out manufacturing in the US and parts of Europe.

They started to piece together regions with common characteristics (such as Eindhoven in the Netherlands, Albany and Akron in the US) where large firms were starting to invest in new production facilities and reject low-cost labour locations – a reverse on the trends in the 1980s and 1990s.

They argued that there was proof that “Major American companies were bringing some of their most important manufacturing operations back to the United States” and locating new large-scale investments in regions where close co-operation with local university research specialisations was possible.

These university research-industrial complexes seemed to offer new sources of innovation and growth.

They wrote of the GE decision to locate in Batesville, Mississippi allowed the “iconic global corporation” to work “closely with the little-known educational institution” (Mississippi State University), the latter which “had amassed tremendous knowledge of new materials of the kind that would be needed in the creation of the next generation of superlight, ultraquiet, extremely fuel-efficient aircraft engines”.

Their hypothesis was that the old “rustbelts, former industrial citadels that had been hit hard by offshoring, suffered decline … were now coming back stronger” by “transforming themselves from also-rans into centers of innovation and smart manufacturing that we called ‘brainbelts'”.

In some cases, these new innovative regions did not have a rustbelt background (for example, San Diego) while others, (such as Akron, Ohio) clearly had such an industrial background.

A central organising unit in all these regions were the “new, university-centred brain hubs” which fast-tracked the:

… process of innovation and the creation of products that involved collegial collaboration, open exchange of information, partnerships between the worlds of business and academia, multidisciplinary initiatives, and ecosystems composed of an array of important players, all working closely together.

Innovation was a team activity rather than relying on the work of a “solo genius” or a “pair of geeks in a garage”.

Brainpower was also being shared in “unlikely places that were becoming hotspots of innovation. Most of these were cities and regions that had been ravaged by the outsources of the 1980s and 1990s”.

The hotspots were not returning “to traditional manufacturing” but rather building new R&D centres “smarter than before” and using “smart, clean, flexible” processes operated by “integrated electronics and mechanics”.

The new jobs were not based on “firing up the old equipment and hiring back laid-off workers to run the assembly lines”.

Rather, the new jobs were in “facilities” were people “worked in teams of specialists and professionals, some with advanced-skills training, some with PhDs, and, yes, some retrained former line workers”

The products were “innovative, connected, customized, and of high quality … Cheap was giving way to smart”.

The advantages for creating these new brainbelts lay in the advanced nations rather than the low-cost Asian economies, which lagged behind in educational standards etc.

These advantages included:

1. “research facilities with deep, specialist knowledge”.

2. “educational institutions”.

3. “government support for basic research”.

4. “appealing work and living environments”.

5. “the atmosphere of trust and the freedom of thinking that stimulates unorthodox idea and accepts failure as a necessary part of innovation”.

The authors claimed these characteristics were the anathema of what is found in the “hierarchical, regimented thinking” that prevails in the low-cost “Asian and MIST economies”.

They identify differences in this regard between Europe (“no common defense budget” and “innovation … has been stimulated through national research institutes”) and the US (with its “huge defense budget” and proliferation of small “start-up companies”).

So the role of government is different. One funds innovation via defense the other via the large pure and applied research agencies.

They offer the following characteristics that seem to combine to help these hotspots form:

1. They “take on complex, multidisciplinary, and expensive challenges” that require collaboration – no single player can do it.

2. A driver is the so-called “connector, an individual or group” that builds the ecosystem.

3. The region operates “in a collaborative ecosystem of contributors with research universities at their center” working with “start-ups, established companies … local government authorities, and community colleges or similar vocational institutions”.

4. They are focused “on one, or just a few, particular disciplines or activities”.

5. These components are “open to sharing knowledge and expertise” – they do not seek to monopolise knowledge.

6. They foster “physical centers” which allow small innovators to work together.

7. They act as “a magnet for talent” – work places and leisure spaces (cafes, sports, good schools etc).

8. They have venture “capital available” – often via government.

9. They have “an understanding and acknowledgement of threat” which keeps innovation at the forefront of their focus.

That is a summary of the idea.

The narrative is becoming very popular among university managers who seem to think that these sorts of developments will provide a secure future for their institutions, which are being threatened by public spending cuts and demographic trends (ageing society).

It is also fuelling the debate within the higher education sector that is promoting the so-called STEM (Science, Technology, Engineering and Mathematics) disciplines at the expense of the traditional humanities. It is claimed that the former are more likely to promote innovation and form collaborations with private, for-profit enterprises.

Societal health and well-being (more sophisticated debates etc) which are promoted by the humanities seems to be forgotten in these never-ending debates about how the public sector can subsidise private profits.

For more discussion on this point, please read my blogs:

1. The humanities is necessary but not sufficient for social transformation.

2. I feel good knowing there are libraries full of books.

3. We need more artists and fewer entrepreneurs.

4. Technocrats move over, we need to read some books.

Corporations are also feeding the ‘Brainbelt’ narrative because it seems to be a way to justify increased government hand-outs to them in an age of fiscal austerity, which many of corporate leaders, have themselves, helped to create and promote.

It is a case of welfare for them but not for others (like the poor and unemployed).

As noted in the introduction, the same sorts of claims were made in the ‘New Regionalism’ literature that peaked in popularity in the 1990s and early 2000s, under the guise of Tony Blair’s Third Way movement.

New Regionalism proposes a series of ‘solutions’ or separate policy agendas that build on these individualistic explanations for unemployment and accepts the litany of myths used to justify the damaging macroeconomic policy stances that are now the norm in Europe and beyond.

By failing to ask the correct questions, these ‘solutions’ then appear, on first blush, to have (undeserved) plausibility.

New Regionalism emerged in the mid-1980s and was largely driven by case studies documenting economic successes in California (Silicon Valley) and some European regions (such as Baden Württemberg and Emilia Romagna).

Exactly the same sort of inductive reasoning was used to advance the narrative as the ‘brainbelt’ authors deployed. Visit a few regions which are growing and seek to generalise.

The interlinked ideas that define the New Regionalist approach to ‘space’ are consistent with the oft-heard claim from neo-liberals that the ‘national’ level of government is now getting in the way of development or that the ‘nation state’ is no longer a relevant organising unit.

New Regionalism claims that ‘the region’ is now the “crucible” (to use the words of British regional scientist John Lovering) of economic development and should be the prime focus of economic policy.

In this way, the claim is that regions have now usurped the nation state as the “sites of successful economic organisation” (Scott and Storper’s words) because supply chains (in the post Fordist era) have become more specialised and flexible given the need to deal with uncertain demand conditions.

This is, of course, the mantra that many on the Left now use to justify austerity-lite policies. They argue that globalisation has somehow eroded the capacity of the nation state to advance the well-being of the people and that regions have to take up the power vacuum.

New Regionalism advocates argue that regional spaces provide the best platform to achieve flexible economies of scope that are required to adjust to increasingly unstable markets.

These socio-spatial processes involve localised knowledge creation, the rise of inter-firm (rather than intra-firm) relationships, collaborative value-adding chains, the development of highly supportive localised institutions and training of highly skilled labour.

These dynamics require firms to locate in clusters, often grouped by new associational typologies (for example, the use of creative talent or untraded flows of tacit knowledge) rather than by a traditional economic sector such as steel.

The new post-Fordist production modes emphasise new knowledge-intensive activities encouraging local participative systems. By achieving critical mass of local collaborators, a region could be dynamic and globally competitive.

Most these claims are based on induction of regional ‘successes’ without regard for the specific cultural or institutional contexts, and lack any coherent unifying theoretical underpinning.

New Regionalism – Brainbelts – not a lot of difference in their conception, although in the latter case, there is a clear ‘public’ element that is placed at the centre of the hypothesis – both in the form of the role of the universities (which may be public) in providing the R&D skills and knowledge and the role of governments in providing spaces, zoning and … obviously FUNDING.

We will return to that point presently.

There is also a problem of evidence. It is highly disputable whether the empirical examples advanced to justify the claims made by New Regionalist proponents actually represent valid evidence at all.

For example, John Lovering (1999: 382), a critique of New Regionalism, examined the claimed made in the 1990s about Wales and concluded:

If one factor has to be singled out as the key influence on Wales’ recent economic development … it is not foreign investment, the new-found flexibility of the labour force, the development of clusters and networks of interdependencies or any of the other features so often seized upon as an indication that the Welsh economy has successfully ‘globalized’. Something else has been at work which is more important than any of these, and it is a something which is almost entirely ignored in New Regionalist thought … It is the national (British) state.

[Reference: Lovering, J. (1999) ‘Theory led by policy: the inadequacies of the New Regionalism’, International Journal of Urban and Regional Research, 23, 379-395]

That is, a supportive macroeconomic policy framework – read deficit spending from the currency-issuing government.

While many criticisms can be levelled at New Regionalism, its major weakness is that perpetuates the notion that regions can entirely escape the vicissitudes of the national business cycle through reliance on a combination of foreign direct investment and export revenue.

It is a different spin (a variation) on the ‘business cycle is dead’ notion and amounts to a denial that macroeconomic policy – that is, at the national level – can be an effective response to global trends that penetrate via the supply chains defined by trade patterns to the local region.

New Regionalism thus supports neo-liberal claims that fiscal and monetary policy is impotent and, in turn, it constructs mass unemployment as an individual phenomenon.

By ignoring the fact that mass unemployment demonstrates the unwillingness of the central government to spend sufficient amounts of currency given the non-government sector’s propensity to save, the neo-liberal position is left unchallenged and is actually reinforced and a new style of Says Law emerges with claims that post-Fordist economies need to focus on ‘supply-side architectures’.

The more recent work I am discussing in this blog – the ‘brainbelt’ ideas clearly acknowledge the role of the public sector as a key part of the innovation process both in terms of skills and knowledge and in terms of funding.

That is an advance of the more ‘free market’ approach of the New Regionalist writers.

But there are clearly shortcomings in the ‘Brainbelt’ story, which cherry picks ‘success stories’ (just like the New Regionalist literature) and excludes some important broader information that once included in the analysis seriously tempers our assessment.

Akron, Ohio is an interesting case in point. The former ‘Rubber Capital’ (named because of the concentration of the US tyre industry there) certainly became a ‘rustbelt’ town in the 1980s as jobs vanished and firms moved to other locations.

According to the ‘Brainbelt’ authors, the boss of the University of Akron, known for its research in polymer science, saw opportunities to create new forms of prosperity for the town by integrating the university’s research prowess into a new collaborative model of innovation.

The University president became in their terminology a “connector” who changed university regulations to allow its research staff to profit from commercialising their research.

With the State government (Ohio) fronting with money to “create new technology-based products, companies, industries, and jobs” a new wave of firms emerged in Akron and turned the city (and region) into the “Poylmer Capital”.

Akron was back – at the forefront of a new growth industry.

The facts, however, should temper our cheers!

The US Bureau of Labor Statistics (BLS) provide quite detailed data for Akron from its Midwest Information Office located in Chicago.

Consider the following graph, which shows the official unemployment rate for the US (green, seasonally-adjusted), Ohio (red) and Akron (blue, original) from January 1976 to May 2016. The Akron data only starts in January 1990.

The deindustrialisation of Ohio’s manufacturing industry is evident in the divergence of its unemployment rate from the national average in the early 1980s but after that its fortunes have been largely dictated by the national cycle.

Akron’s unemployment rate, in turn, is driven by the same national trends. There is no evidence that something special or peculiar is going on in Akron (as it becomes the ‘Polymer Capital’) to distinguish its economic cycle from the national cycle.

In other words, when the US economy gains strength, Akron’s labour market improves and vice versa.

The next graph shows total employment indexes for the three labour markets (Akron, Ohio and the Nation) from January 1990 to May 2016. The reason the blue line is erratic is because it is non-seasonally adjusted data.

The message is that while Akron seems to have performed better than the state of Ohio in the immediate pre-GFC period – and followed the national trend, once the GFC hit the downturn in employment was severe.

Its total employment is still 6.2 per cent below the peak (November 2007), whereas the State remains 2 per cent below that peak. The national employment is just 3 per cent above the 2007 peak.

So there has been a considerable break in the regional behaviour of employment from the nation as a whole, which suggests that the new jobs being created in the US (even though the growth overall has been modest) are not in sectors that favour Akron, or for that matter, the State of Ohio.

The final graph shows the labour force growth (in index form) from January 1990 to May 2016 for the three labour markets (Akron, Ohio and the Nation).

It is labour force at the national level is growing again after flattening out during the GFC – as participation rates plummetted.

For Akron and the State of Ohio labour force growth is well below the national average and is the reason that the unemployment rates have followed the national average closely, while employment growth rates have diverged.

The summary observation is that Akron does not appear to be a prospering region based on the labour force aggregates.

An assessment of the ‘Brainbelt’ hypothesis in relation to Akron was also made in this Wall Street Journal article (April 14, 2016) – Turning Rustbelts Into Brainbelts.

The author concludes that:

But in their enthusiasm for Akron’s comeback story, the authors gloss over some facts. The population of Summit County, of which Akron is the seat, has barely changed in two decades. The statistics show no influx of brainy young innovators: The county has aged faster than the country as a whole since 2000, and its median age, 40.6 years, is three years above the U.S. average. While a small number of scientific and technical jobs have been added, total employment peaked nearly a decade ago, and wages remain below the national average. In short, after 15 years the economic benefit of becoming a “brainbelt” seems to be limited.

The WSJ also examines another of the alleged ‘brainbelt’ regions – Albany, New York State.

The ‘Brainbelt’ authors argue that SUNY’s creation of a “Nanotech Complex” has attracted global funding and:

Jumpstarted by the collaboration between the state of New York, its university system, and IBM, the Hudson Tech Valley has become a thriving brainbelt.

The WSJ observes that:

What they don’t make clear is that this required breathtaking amounts of public money. “The GlobalFoundries arrangement was one of the biggest taxpayer handouts ever offered to a private enterprise in the United States,” the Albany Times Union reported in 2011. The subsidy was initially pegged at $1.2 billion, or nearly $1 million per job created in the project’s first phase—enough to pay an average plant worker’s wages for more than a decade.

While I am not taken (obviously) by the attacks on public spending by those who do not understand ‘where the money comes from’, it is clearly an issue if public money is just bankrolling private profits and failing to deliver benefits to all workers.

Is this sort of subsidy the best way to promote the well-being of all workers? Those questions are light on in the ‘Brainbelt’ book.

This raises additional issues that the book’s promotion of ‘brainbelts’ ignores.

First, the skills that promoted the prosperity in the ‘rust belts’ are not likely to be relevant in the sort of ‘smart’ manufacturing processes that might emerge in these Brainbelt regions.

How can we ensure that there is adjustment paths to ensure that all workers prosper from large public and private investments in these new innovative ‘Brainbelt’ campuses and production processes?

The authors actually consider that parallel development along the lines of the German apprenticeship system is required to integrate the schooling system with infrastructure developments and private firms.

Major public investment will be needed and a return to strong public employment can help ease this transition.

In these blogs, Australia’s response to climate change gets worse and When jobs are being lost think macro first – I discussed the concept of a Just Transition framework to ensure that the costs of economic restructuring do not fall on workers in targeted industries and their communities.

These sort of adjustments, require government support and intervention to ensure that displaced workers are able to transit into the new industries and jobs quickly.

National governments should introduce integrated employment guarantee/skills development frameworks to maintain income security and capacity building while regions adjust from old technology to new, smart processes.

On the question of incentives, I generally do not favour handing out public incentives to private firms. I see this as a denial of ‘capitalism’. If private firms want the returns then they should take the risk.

However, I do support public enterprise and partnerships with local not-for-profit co-operatives. There is so much need in the area of personal care and environmental care services now as populations age and the environmental damage of our past thoughtless industry and farming practices mount, that there is more than enough public sector work to be done to absorb displaced workers should that be required.

Second, many new jobs in these ‘smart’ manufacturing processes will be taken by robots, which will also increasingly provide services as they become more intelligent and dexterous.

As the new ‘smart’ jobs that emerge in these ‘Brainbelts’ are taken by robots, more workers will be left behind unless governments take an increasing responsibility to provide work within public employment markets.

The introduction of the – Job Guarantee – has to be seen as part of this increased public employment capacity, given that many of those displaced by industrial shifts will be those with low skills and little capacity to retrain to work in the high-tech sectors.

The public sector will have to play an increased role also in providing high skilled work for those who are displaced by robotic innovations.

As noted above, there will be growing demand for workers of all skills in the areas of personal care (as populations age) and community development, so there is little reason to fear the spread of robots.

The challenge of government is to ensure the distribution system maintains the capacity of workers who do not work in these high productivity sectors (where productivity is narrowly defined here) to enjoy real wages growth.

Third, this also suggests that a progressive agenda must be one that works to broaden the definition of productive work so that new areas of employment can be created within the public sector to provide on-going opportunities for local workers who are not absorbed in the growth provided by these ‘Brainbelts’.

Please read my blog – Employment guarantees are better than income guarantees – for more discussion on this point.

The old definition of gainful labour was biased towards activity that supported private profit generation within labour intensive, large-scale assembly production models.

So while regions work to support the ‘Brainbelt’ collaborations, the workers who live there who are not part of this increasingly capital intensive production methods, can still contribute to society through meaningful work that both provides them with income security but also ensures that income and wealth inequalities are reduced.

If productivity is enhanced by the smart part of the local labour market, then everyone benefits! That should be the aim of public investment in these smart innovation hubs.

Conclusion

The Brainbelt concept has some appeal, clearly.

But we should see it as another panacea nor another way that the public sector underwrites private profit generation while a broad swathe of the population are increasingly left behind.

There is a role for the public sector to play in revitalising declining regions. But it involves a lot more than allowing universities to become cheap tools for private capital and the public sector doling out billions to private firms who then privatise the profits.

A progressive agenda surely involves the use of smart technology to reduce the onerousness of manufacturing and to enhance productivity. But, it also requires the state to use its fiscal capacity to ensure the benefits are spread.

Further, we will not be able to escape the reality that the public sector will have to become a major employer in a progressive future to not only facilitate shifts in economic activity away from environmentally-damaging areas but also to provide a haven for those who will otherwise be left behind by the new ways of doing things.

The series so far

This is a further part of a series I am writing as background to my next book on globalisation and the capacities of the nation-state. More instalments will come as the research process unfolds.

The series so far:

1. Friday lay day – The Stability Pact didn’t mean much anyway, did it?

2. European Left face a Dystopia of their own making

3. The Eurozone Groupthink and Denial continues …

4. Mitterrand’s turn to austerity was an ideological choice not an inevitability

5. The origins of the ‘leftist’ failure to oppose austerity

6. The European Project is dead

7. The Italian left should hang their heads in shame

8. On the trail of inflation and the fears of the same ….

9. Globalisation and currency arrangements

10. The co-option of government by transnational organisations

11. The Modigliani controversy – the break with Keynesian thinking

12. The capacity of the state and the open economy – Part 1

13. Is exchange rate depreciation inflationary?

14. Balance of payments constraints

15. Ultimately, real resource availability constrains prosperity

16. The impossibility theorem that beguiles the Left.

17. The British Monetarist infestation.

18. The Monetarism Trap snares the second Wilson Labour Government.

19. The Heath government was not Monetarist – that was left to the Labour Party.

20. Britain and the 1970s oil shocks – the failure of Monetarism.

21. The right-wing counter attack – 1971.

22. British trade unions in the early 1970s.

23. Distributional conflict and inflation – Britain in the early 1970s.

24. Rising urban inequality and segregation and the role of the state.

25. The British Labour Party path to Monetarism.

26. Britain approaches the 1976 currency crisis.

27. The 1976 currency crisis.

28. The Left confuses globalisation with neo-liberalism and gets lost.

29. The metamorphosis of the IMF as a neo-liberal attack dog.

30. The Wall Street-US Treasury Complex.

31. The Bacon-Eltis intervention – Britain 1976.

32. British Left reject fiscal strategy – speculation mounts, March 1976.

33. The US government view of the 1976 sterling crisis.

34. Iceland proves the nation state is alive and well.

35. The British Cabinet divides over the IMF negotiations in 1976.

36. The conspiracy to bring British Labour to heel 1976.

37. The 1976 British austerity shift – a triumph of perception over reality.

38. The British Left is usurped and IMF austerity begins 1976.

39. Why capital controls should be part of a progressive policy.

40. Brexit signals that a new policy paradigm is required including re-nationalisation.

41. Towards a progressive concept of efficiency – Part 1.

42. Towards a progressive concept of efficiency – Part 2.

43. The case for re-nationalisation – Part 2.

44. Brainbelts – only a part of a progressive future

The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of my next book due later in 2016.

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved.