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The Era of Divergence (and Distinctiveness)

Germany vs. Spain. Texas vs. Florida. These aren’t predictions for the next World Cup final or BCS title game but rather examples of the regional divergence in economic performance and fiscal outlook described by Gillian Tett in the Financial Times last Friday. She argues that while international attention has been focused on the divergence of the Eurozone (between countries with strong, growing economies and those without), the U.S. is also seeing dramatic divergence on the same scale, in economic and fiscal performance among the states.

Tett is right that we have indeed entered the era of divergence, but viewing divergence through the lens of the political boundaries of countries or states is insufficient in a century where metropolitan economies concentrate the distinctive assets (innovative capacity, human capital, infrastructure) and economic clusters that determine prosperity and, as a consequence, drive national and state economies.

A state perspective on economic recovery in the United States, for example, provides too gross a picture:

As our latest Metro Monitor (which covers recovery in the top 100 metros through the third quarter of 2010) indicates, states often contain distinct metros on divergent tracks. In North Carolina, for example, Raleigh has been a recession-era success story with eds-and-meds sectors that have buoyed sustained economic output that is now more than 4 percent above pre-recession levels. Charlotte, a finance hub, has seen continued economic stagnation, including ranking in the bottom 10 for job creation in most recent quarter covered. A similar story is true in states ranging from Utah and Colorado to South Carolina and Georgia.

We also find states whose distinct metros have shared economic performance, despite their differences. All six of the Texas metros are among the strongest 20 nationally, for example, but the factors driving the research and tech-dominated economy of Austin, the energy-fueled economy of Houston, and the health care boom in McAllen are strikingly different. This is no different in struggling states like California and Florida, whose metros comprise nearly half of the bottom 40 performers, notwithstanding their unique clusters.

Of course, divergence and distinctiveness across metropolitan areas isn’t unique to the U.S., as shown by our Global Metro Monitor (which tracked the performance of 150 global metros over the course of the recession). Western European nations provide an analogue to U.S. states:

Germany is beginning to recover, albeit with divergent metro trajectories across its metro economies: Hamburg—the country’s largest port, and an aerospace manufacturing center—ranks 7th among 38 Western European metros for employment change in the first year of global economic recovery (seeing a relatively small, 0.5 percent, decline between 2009 and 2010). The financial capital of Frankfurt, on the other hand, has seen more dramatic continued job losses, ranking 20th in Western Europe (with a 1.1 percent decline between 2009 and 2010).

In Spain, like Florida, shared trajectories cross metros: both the manufacturing and port center of Barcelona, and finance capital of Madrid, for example, rank among the 7 worst performers in Western Europe, with more than 1.7 percent of jobs lost in each between 2009 and 2010.

These stories of distinctiveness and divergence are not just interesting observations of macro and metro economic dynamics; they have significant implications for policy and practice as we recover from the recession, and build a new growth model for the nation.

The recovery in the United States is likely to be driven by a different set of sectors and clusters than drove the prior, consumption dominated economy.   In our view, the U.S. economy is beginning a slow but gradual transition to an economy powered by exports, low carbon, innovation and skilled workers.   This productive economy, unlike the pre-recession state of affairs, shows enormous variance across metropolitan areas. Phoenix and Pittsburgh differ markedly in their export sectors and trading partners. Denver and Detroit have different possibilities in the low carbon transformation. 

Thus, divergence should provide a roadmap for shaping markets going forward through intentional and deliberate metropolitan strategies that build on the distinct assets, attributes and advantages of disparate places. This should start with a deeper awareness of and dedication to place across the multiple public, corporate, civic and university players that, in the end, co-produce metropolitan economies.   This is the basic definition of a “smart” metropolis.

Can metropolitan leaders become more intentional about their metropolitan futures? We think yes. Even in an era of globalization, boundless connectivity and hyper mobility, regional instincts and loyalties come naturally at the metropolitan scale. Think Longhorns vs. Aggies, or Real Madrid vs. FC Barcelona.