Can the "Creative Class" Cure the Rust Belt?
By Andrew L. Jaffee, November 24, 2003
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Note: This article originally appeared in Dayton City Paper, October 15, 2003.The Tools Versus the Techs
No, it's not Tool Time. It was Tool Town. Now it's Tech Town.
The City of Dayton, Ohio has had to face up to the seismic shifts taking place in America's economic landscape. City government had originally pinned its economic dreams on a tool and die manufacturing-based economic plan called Tool Town. Because of the long-term decline in Dayton's manufacturing sector, the City has revised its plan, and now calls it Tech Town.
This ambitious project, sponsored by Dayton city government, CityWide Development Corp., and several other urban development groups, seeks to help Dayton move from its manufacturing roots into the technology age. The goal is to improve Dayton's economy and quality of life by attracting young, creative professionals into the inner city.
Tech Town's first phase, the Entrepreneurs Center (EC), a small technology business incubator, is showing tangible results already. The EC has created 188 jobs in downtown Dayton in the last three years, with a current annual payroll of $12,742 million.
Tech Town architects hope to expand on Dayton's new momentum -- like the EC, Riverscape, Dragon's Stadium, and the Schuster Center -- and make the inner city a more attractive place to live, work, and play.
Dayton's Golden Manufacturing Age
Dayton's economy was hurt -- as was most of the nation -- with the burst of the economic "bubble" in 2000 and 2001. Manufacturing activity in the U.S. has recently increased, but has been steadily declining since 1979. Dayton has traditionally been a manufacturing hub since the post-Civil War boom.
The founding in 1886 of industrial powerhouse National Cash Register (NCR) was just the beginning of Dayton's golden manufacturing age. After WWII, Dayton experienced another economic boom. Industrial giants like General Motors and Frigidaire all employed many Daytonians. But the 1970's saw a general, nationwide decline in heavy industries. Many Daytonians lost manufacturing jobs during the 70's, 80's, and 90's.
On the bright side, Dayton has a long tradition of technological innovation, being home to great inventors like John H. Patterson, Charles F. Kettering, and Orville and Wilbur Wright. If Dayton's past innovative successes are any barometer for its future, then the future looks bright. There is growing evidence of this bright future.
According to a Morgan Quitno Press survey, Ohio jumped 19 places from 2002 to 2003, making it the 22nd "smartest state" out of the fifty U.S. states. The survey's assessment of "smartness" was based on factors such as statewide spending on education, parental involvement in their children's learning, and school class sizes. Ohio surpassed the national smartness average in 2002.
The Creative Class
Tech Town is part of the City of Dayton's revised 20-year economic plan dubbed "CitiPlan 20/20." The original plan was adopted by the Dayton City Commission in May 1999. A cornerstone of the 1999 version was Tool Town, a strategy for expansion of Dayton's tool and die manufacturing sector.
"The original plan had to be revised to take into account a changing economic reality," said Steve Nutt, Director of Strategic Development for CityWide.
While the manufacturing sector is still important to Dayton, the number of people employed in manufacturing has steadily declined over the last 20 years. In 1985, manufacturing employed 23 percent of workers in the Dayton-Springfield metropolitan area. By 2002, this percentage had shrunk to 15%.
This is part of a nationwide trend. A 2000 United Auto Workers study showed that the U.S. lost 2.6 million manufacturing jobs from 1979 to 1999. Nonetheless, the 2000 Census revealed that Ohio had more manufacturing jobs than any state except California. Dayton-Springfield has the highest concentration of manufacturing jobs in Ohio.
According to Nutt, the Tool Town strategy was transformed into Tech Town. CityWide's revised plan recognized the decline in manufacturing and the "global transition from manufacturing to a knowledge/creativity-driven economy." Tech Town aims to help Dayton's manufacturers migrate to knowledge-based enterprises.
The term "knowledge-based economy" has become ubiquitous these days. One only need examine her or his daily life to understand its meaning. Human awareness and perception is a form of information processing. People communicate with friends and colleagues via language. Grade school students learn how to interact in society by consuming information provided by teachers and textbooks. As the human population has grown, societies have become much more complex, putting a strain on communication means like face-to-face dialog.
Imagine if the processing of every month's 35 million Social Security checks was done manually. Intel Corporation, whose computer chips are the "brain" found in 80 percent of the world's desktop computers, designs all its products using software tools. Some of these "brain" chips contain 100 million transistors. It would be impossible to design such chips without the help of software design tools.
CityWide acknowledged that a good portion of Dayton's workforce doesn't have the skills for knowledge-based jobs. According to the European Union (EU), there are a number of basic skills ("key competencies") that workers need to participate in the knowledge-based economy. These include mastery of one's mother-tongue; entrepreneurship; computer skills; knowledge of math, science and technology; foreign language aptitude; problem-solving abilities; capacity to learn and adapt; interpersonal and civic skills; and knowledge of one's home and foreign cultures.
Tech Town's strategy is to attract people with these skills to the Dayton area, provide an exciting cultural environment in which they can live and work, and thereby boost the city's economy.
Nutt said that Tech Town is based in part of the work of Richard Florida, author of The Rise of the Creative Class and professor of economic development at Carnegie Mellon University. "Creativity -- the ability to come up with and implement a new idea -- has always been the prime source of economic growth and advantage," said Florida in an article published in The Washington Monthly.
According to USA TODAY writer Haya El Nasser, Professor Florida's creative class includes "culturally and ethnically diverse people -- artists, gays, people who are physically fit and open-minded and anyone who thinks and creates for a living."
El Nasser stated that such people are more interested in quality of life than 9-to-5 jobs, dress codes, or climbing the corporate ladder.
"Most don't live to work but work to live," El Nasser said. "They want fun neighborhoods, art galleries, coffee houses, nightlife, and diversity in everything from race and sexual orientation to music and hairstyles."
El Nasser concluded that, "In short, they crave cities that are tolerant of all lifestyles."
"I didn't invent this," says Professor Florida, admitting that his theories are not completely unique. Indeed, groups like Italians, Jews, Poles, gays, Chinese, Latvians, and African-Americans poured into U.S. inner cities in the first half of the 20th century. They made these cities into vibrant cultural hubs. As Mel Brooks once said, "Without Jews, gays, and gypsies, there is no theater."
In his Washington Monthly article, Professor Florida claimed that the creative class now makes up more than 35 percent of the workforce in cities like Austin, Boston, Raleigh-Durham, and Washington, DC. He asserted that these urban centers attract creative people because of their diversity and high quality of life. Florida warned that mid-sized cities like Dayton must adapt to change and attract creative people if they are to survive in the knowledge-based economy.
"Even as places like Austin and Seattle are thriving, much of the country is failing to adapt to the to the demands of the creative age," concluded Florida.
About 18 months ago, Dayton City Manager Jim Dineen and the City Commission asked CityWide to revise the original Tool Town plan, according to Steve Nutt. CityWide received input from Dayton-based companies like Fifth Third Bank, Relizon, and Standard Register; from organizations like the Downtown Dayton Partnership (DDP) and Wright Dunbar Village; as well as from Dayton residents through the Priority Boards.
The revised plan, Tech Town, recognized some of Dayton's competitive weaknesses: lack of sites ready for development in the downtown; inadequate coordination between education, business, and government; Dayton's concentration of "slow/no growth industries;" concentration of poverty in the inner city; and, low city tax revenues.
But the plan also noted significant positives that downtown Dayton already offers to prospective business and employees: Riverscape, the Webster Street and Second Street public markets, hundreds of lofts and apartments, the Neon Movies theater, 50 bars and night clubs, over 60 restaurants, 6 cafes, Dragon's Stadium, the Schuster Performing Arts Center, the Victoria and Loft theaters, and 4 health clubs.
Tech Town would leverage Dayton's current assets by creating two "themed districts" in downtown Dayton to attract creative individuals and new businesses into the city. These districts are supposed to create a setting where government, business, and academia can collaborate in support of Dayton's economic strengths. It is hoped that Tech Town would encourage the adapting of technology originally developed for military or academic use into commercial applications. Wright Patterson Air Force Base, the University of Dayton Research Institute, Wright State University, and Sinclair Community College are all potential participants in this plan.
Tech Town's proposed "core" themed district would be bounded by First Street, Keowee Street, Webster Street and the Mad River, and covers about 24-30 acres. This property is now comprised of old warehouses and parking lots. The warehouses are used only for cold storage. The City already owns portions of the property and has a purchase agreement to acquire the rest from Peerless Transportation.
There is currently one problem with the core site. Some of it has industrial contamination left over from previous tenants, and has been designated a "Brownfields" site by the Federal Environmental Protection Agency (EPA). In 1998, the EPA granted the City $200,000 for assessing potential cleanup and redevelopment of the core.
According to Nutt, the City, Clean Ohio Fund, and the U.S. EPA will be funding the cleanup, which will take an estimated 4-5 years to complete.
The Tech Town plan specifies that the core area, "will offer development-ready sites and special office space to businesses looking to expand or relocate" to downtown Dayton. But Tech Town will offer more than just office space. For example, the planned facility will have a communications network installed for Internet connectivity.
The core area concentrates more on the work in "live, work, and play." The second themed district hopes to satisfy workers' appetites for living and playing. The live/play area will stretch approximately from the northern border of the core (First Street) to the Oregon District.
Nutt says that this area is, "more about entertainment or mixed use -- a 24-hour environment." He hopes that Tech Town will encourage more loft housing, restaurants, entertainment, and some retail space to move into the area. By doing so, Tech Town can provide a complete environment for people to work, get entertained, and eat -- all within walking distance.
According to Gwen Eberly, Development Services manager for the City of Dayton Office of Economic Development, no opposition to the Tech Town plan has been voiced to date. "Who would object to the rehabilitation of a toxic eyesore and bringing new jobs into the city?" said Eberly.
"At recent public hearings to discuss Tech Town, no one from the neighborhood showed up," said Eberly. "The people who did show up were project supporters."
Eberly noted that the event was advertised and was announced through the local Priority Boards. She added that there were initial concerns as to how the planned office space in the core area would be used, but that those concerns were eventually allayed.
Steve Nutt stated that the Downtown Dayton Partnership (DDP) was initially concerned about Tech Town office space competing with existing downtown space, but that the DDP is now fully onboard with the plan.
Tech Town is off to a good start already, as evidenced by the success of the Entrepreneurs Center (EC). The EC is a technology business incubator located on Monument Avenue across from the proposed Tech Town core area. It has been supported by both CityWide and the City of Dayton, and serves as a prototype for the Tech Town strategy. Funding for the Center comes from the Ohio Department of Development.
Barbara Hayde, EC President, said that her organization's goal was to provide a nurturing environment for small technology business startups.
The EC's mission is to help its startup businesses, or "tenants," survive and grow into sustainable, mature enterprises. The Center supports its tenants by offering them access to education, business mentors, administrative and office services, help with debt and equity financing, state-of-the-art technology infrastructure, and free or discounted legal and accounting advice.
EC is only 3 years old, but it is currently at 100 percent tenant capacity, housing 27 businesses. These startups have created 188 jobs in Dayton with an average salary of $59,000. Tenant companies have generated approximately $17.8 million in revenues, and have attracted $35 million in private investments and $2.6 million in federal grants.
"If a tenant has a problem, he or she can walk down hall and find another tenant who most likely has had a similar problem," said Hayde. "We're a family and community here."
There's No Time Like the Present
With the U.S. economy on the mend, now may be a good time for the Tech Town initiative.
The U.S. economy as a whole grew at an annual rate of 3.3 percent in the second quarter of 2003, as measured by the Gross Domestic Product (GDP). This compares to GDP growth of 1.4 percent in the first quarter. Personal spending by consumers grew 3.8 percent in the second quarter, compared with 2.0 percent in the first. Investment in nonresidential real estate grew 7.3 percent, as compared to a first-quarter drop of 4.4 percent. Investment by U.S. companies in software and equipment increased 8.3 percent, in contrast to a first-quarter decrease of 4.8 percent. Manufacturing activity, as measured by the Institute for Supply Management Manufacturing Index, has risen for the past four consecutive months. This is good for Dayton, as the Gem city is still heavily reliant of manufacturing-type jobs. American workers' productivity -- a measure of how much service or product U.S. workers produce in an hour -- grew an amazing 6.8 percent in the second quarter versus 2.1 percent growth in the first quarter. Corporate profits rose $80.6 billion in the second quarter, compared with a $20.4 billion rise in the first.
These numbers have fueled U.S. stock markets. The broad market averages, like the tech-heavy NASDAQ, has risen 41.78% year-to-date, with the Dow Jones rising 15.03% and the S&P 500 growing 17.58%. These numbers are good for both companies and individual Americans.
Profit growth and rising stock prices makes companies more willing to hire new employees and purchase new equipment. Since forty-seven percent of Americans are invested in stocks, rising prices means greater personal net worth, a feeling a security, and leads to increased spending. This in turn leads to higher revenues and profits at companies, which leads to increased spending and hiring. This cycle is good for the economy and nation as a whole.
There are several factors that may pose a threat to continued economic improvement, namely the current lack of sustained job growth, the increasing export of American jobs overseas, the sluggishness in technology spending, and increasing productivity growth.
One may wonder why increased productivity could have a downside. As productivity increases, companies get more product and/or services out of fewer workers. Only when demand outstrips the capacity of a company's workforce will that company start to hire again.
One may also wonder why companies would be hesitant to hire new workers despite the good economic numbers. The answer lies mainly in psychology. During the booming 90's, investors and the companies they were invested in got a little too excited. Many were talking about a "new economy" that would defy the laws of gravity and achieve "escape velocity."
Investors bought too many stocks of companies with questionable business plans. They also bought too much equity in good stocks. Many companies, both questionable and serious, spent too much -- especially on technology. The end result was a glut of services and manufacturing capacity for a reality that didn't turn out to be as hopeful as predicted. Many investors lost a lot of money. Many companies ended up with too much hope and too little demand to satisfy those hopes. The end result was an overhang of sentiments like, "I'll never buy stocks again." Some company executives are waiting to be absolutely certain that, "This time the recovery is for real," even though such certainties are rarely attainable.
Economies are no different than natural ecosystems. They go through cycles. People tend to swing between the extremes of fear and greed. When economies reach extremes, both good and bad, they tend to need some time to regroup and recover. Yet the economic news of the last six months is very hopeful.
Despite these numbers, Ohioans' attitude towards the economy is bleak, according to a recent poll conducted by Opinion Strategies Inc. and Grange Insurance. Of 650 of Ohio residents surveyed, 57 percent felt the economy has not changed since last year, 30 percent believed it was worse than last year, and only 10 percent felt the economy had improved.
This pessimism is most likely due to the stagnant job market. Ohio's unemployment rate matches the national rate of 6.1 percent. Job growth tends to be a lagging economic indicator. Job creation should pick up once companies and consumers feel better about the economic climate. In a positive sign, new claims for unemployment insurance have started to drop recently.
Hopefully, people have learned from their hard lessons. The City was wise to admit the decline in its manufacturing sector.
Daytonians are a resourceful people. Good things are happening in the inner city. There are good times ahead.
1. Entrepreneurs Center slide show, The Entrepreneurs Center, Dayton, Ohio, October 9, 2003.
2. Andrew L. Jaffee, "WorldCom & Enron: Wheels of Justice Turn Slowly," netWMD.com, netWMD.com, LLC, Dayton, OH, September 12, 2003.
3. "What's Happening to U.S. Manufacturing Jobs?," United Auto Workers, Detroit, Michigan, November - December, 2000.
4. "Dayton," The Columbia Encyclopedia, Sixth Edition, Columbia University Press, New York, NY, 2001.
5. "History of Dayton, Montgomery County, Ohio," Carolyn Johnson Burns' Genealogy Page, Dayton, Ohio, September 17, 2003.
6. See endnote 3.
7. See endnote 4.
8. See endnote 4.
9. See endnote 4.
10. Robert Rowthorn and Ramana Ramaswamy, "Deindustrialization - Its Causes and Implications," Economic Issues No. 10, International Monetary Fund, Washington, DC, September 1997.
11. See endnote 4.
12. See endnote 4.
13. Dennis Hoerig, "Ohio rates as 22nd smartest state," Dayton Business Journal, American City Business Journals, Inc., Dayton, Ohio, October, 10, 2003.
14. "Citiplan 20/20: Economic Development Plan Update," CityWide Development Corp., Dayton, Ohio, July 23, 2003.
15. Kristen Wicker, "City of Dayton updating long-range plan," Dayton Business Journal, American City Business Journals, Inc., Dayton, Ohio, February 24, 2003.
16. "Labor Force: Manufacturing Employment," City of Springfield Economic Development Home Page, City Of Springfield, Ohio, 2002.
18. "What's Happening to U.S. Manufacturing Jobs?," United Auto Workers, Detroit, Michigan, November - December, 2000.
19. "Ohio No. 2 for manufacturing," Dayton Business Journal, American City Business Journals, Inc., Dayton, Ohio, March 14, 2002.
20. "Labor Force: Manufacturing Employment," City of Springfield Economic Development Home Page, City Of Springfield, Ohio, 2002.
21. "CitiPlan 2020: Economic Development Component Update," CityWide Development Corp., Dayton, OH, July 23, 2003.
22. "THE KEY COMPETENCIES IN A KNOWLEDGE-BASED ECONOMY : A FIRST STEP TOWARDS SELECTION, DEFINITION AND DESCRIPTION," European Commission, European Union, Brussels, Belgium, March 27, 2002.
23. Richard Florida, "The Rise of the Creative Class," The Washington Monthly Online, Washington, DC, May 2002.
24. Haya El Nasser, "Mid-size cities get hip to attract young professionals," USA TODAY, Gannett Co., Inc., McLean, VA, October 10-12, 2003.
25. Richard Florida, "The Rise of the Creative Class," The Washington Monthly Online, Washington, DC, May 2002.
27. "Brownfields Assessment Pilot Fact Sheet - Dayton, OH," United States Environmental Protection Agency, Washington, D.C., June 2001.
28. "CitiPlan 2020: Economic Development Component Update," CityWide Development Corp., Dayton, OH, July 23, 2003.
29. "Media Alert: Entrepreneurs Center Marks Third Year of Success," The Entrepreneurs Center, Dayton, Ohio, October 3, 2003.
32. "News Release: Gross Domestic Product and Corporate Profits," Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC, September 26, 2003.
37. "Chart of the Week for September 12-18, 2003: Manufactured Improvement," chart of Institute for Supply Management manufacturing index Nov. 2001 - Aug. 2003, ICMA Retirement Corporation, Washington, DC, September 12, 2003.
38. Jeannine Aversa, "US productivity soars," NEWS.com.au, News Interactive, Sydney, Australia, September 5, 2003.
39. See endnote 26.
40. "U.S. and World Indices Performance," Raymond James Financial, Inc., St. Petersburg, FL, October 6, 2003.
41. John Dillin, "Few investors ran from the market bear," Christian Science Monitor, The First Church of Christ, Scientist, Boston, MA, April 23, 2001.
42. Kevin Kemper, "Poll: Ohioans say economy isn't so rosy," Dayton Business Journal, American City Business Journals, Inc., Dayton, Ohio, October, 10, 2003.
44. "Ohio's Economy," Office of Strategic Research, OHIO DEPARTMENT OF DEVELOPMENT, State of Ohio, Columbus, Ohio, May 2003.
45. Scott J. Brown, Ph.D., "Economic Brief," Raymond James Financial, Inc., St. Petersburg, FL, June 6, 2003.
46. "Jobless claims drop," The Globe and Mail, Bell Globemedia Publishing Inc., Toronto, Canada, October 09, 2003.