America’s economic map is ever changing. Great migrations—settlers westward; African Americans northward; urbanites outward to greener suburbs, then back again—have shaped the country’s history. Cities have heaved skyward; boom towns have come and gone.
Back in the spring of 2009, I wrote in these pages that the financial crisis would “permanently and profoundly alter the country’s economic landscape.” Some cities and regions “will eventually spring back stronger than before,” I predicted. “Others may never come back at all.”
It might have sounded apocalyptic, but tectonic shifts of this kind are not unprecedented. They are the geographic counterpart to what the economist Joseph Schumpeter dubbed “creative destruction”—the great gales of change that level some companies and industries, and give rise to others. As powerful as they might seem in the moment, it is only when we look back through the lens of history that the full extent of economic and geographic changes becomes clear.
Five years after the crash, with the national economy just beginning to return to something resembling normalcy, we can begin to trace the outlines of America’s emerging economic map—and take inventory of the places that are thriving, those that are declining, and those that are trying, in novel ways, to come back.
The American economy is enormous, and enormously complicated. It comprises scores of industries harboring hundreds of occupations, spread across more than 350 metro economies, large and small. A variety of measures can be used to divine the health and prospects of these different places—population growth, job growth, housing prices, and the unemployment rate are among the more common. Each of these measures has its uses, but some of them can conceal as much as they reveal. Population growth, for instance, tells you nothing about the skills and education of the people arriving; job growth says nothing about whether the new jobs are good or bad.
Throughout this article, I will draw on some of these measures. But I’ll lean most heavily on three measures less commonly seen in the popular press, but perhaps more telling: the composition of job growth (high-wage, mid-wage, or low-wage); productivity growth (which is the basis for improvements in the standard of living); and venture-capital funding (a proxy for the sort of entrepreneurial innovation that can power future growth).
Taken together, the patterns revealed by these measures provide a fine-grained picture of America’s post-crisis geography. The economic landscape is being reshaped around two kinds of hubs—centers of knowledge and ideas, and clusters of energy production. Overwhelmingly, these are the places driving the economic recovery. Outside them, the economy remains troubled and weak.
New York City was widely expected to be devastated by the financial crisis. Wall Street’s collapse, the conventional wisdom went, would bring the whole city down with it. In 2009, I predicted that New York would in fact prove to be one of the country’s most resilient places. Even so, the speed and strength of its rebound has surprised me—its explosive growth as a start-up center especially so.
New York’s financial sector did shrink somewhat—before the 2008 crash, finance and insurance accounted for 44 percent of Manhattan’s payroll; in 2009, 37 percent—but the city has retained its perch as a preeminent global finance center, and the reduction of the finance industry’s footprint has provided the spur and the space for other industries to grow.
New York has incredibly high concentrations of management, media, design, and creative occupations. Since the crash, it has gained ground in its competition with Los Angeles as a center for media and entertainment (the imminent return of The Tonight Show, which decamped for Burbank, California, in 1972, is one result). Brooklyn—the setting for the HBO megahit Girls—has emerged as a major trendsetter for everything from film and television to indie rock and artisanal food.
The crash was supposed to send real-estate values plummeting throughout the city, and prices did dip. But today Manhattan and nearby sections of Brooklyn not only are booming, they have surpassed pre-crisis peaks. And as anyone who has noticed how many windows are dark in Manhattan’s luxury high-rises might have guessed, New York is not just a playground for the global elite, but a locus for their investments—including high-end properties where they reside for a small part of the year.
Then there is tech. Wall Street has always provided capital to high-tech businesses, but until recently, its investment dollars were typically exported to other regions. Yet over the past 10 years, greater New York’s share of the nation’s start-ups funded by venture capital has more than doubled, from 5.3 percent to 11.4 percent, far outpacing Silicon Valley’s rate of growth, with much of the growth occurring after the crash. In 2011, the city attracted more venture-capital investment than any other save San Francisco, nearly double Palo Alto’s, almost four times Boston’s, and more than six times Seattle’s.
Number of Venture-Capital Deals, 2012
Tech clusters have sprouted in Manhattan, mostly in lower neighborhoods like the Flatiron District, and Chelsea and the Meatpacking District down to SoHo and Tribeca on the West Side. All of these neighborhoods are diverse places, filled with old buildings like the former Port Authority building that now serves as Google’s nearly $2 billion New York headquarters. Their repurposing as tech hubs only makes the city stronger and more diverse.
New York’s rise as a tech center signals a major shift in the locus of venture-capital-fueled innovation. For a long time, high-tech start-ups have clustered in suburban office parks along freeways, places that are sometimes called “nerdistans.” But since the crisis, start-ups have taken an urban turn. San Francisco, which has fared extremely well since the crash, is a striking case in point. Over the past several years, Twitter has established its headquarters downtown, Pinterest has moved from Silicon Valley to San Francisco, and even Yahoo has created a new facility in the old San Francisco Chronicle building in the South of Market neighborhood. The legendary Silicon Valley investor Paul Graham saw this coming. “For all its power, Silicon Valley has a great weakness,” he wrote in 2006: “its soul-crushing suburban sprawl.” Today, San Francisco proper tops Silicon Valley as a center for venture-capital investment, by a wide margin. The same shift has happened in greater Boston, where venture-capital investment and start-up activity are now more concentrated in Cambridge and downtown Boston than in the suburbs along Route 128.
What’s surprising is that tech stayed in the suburbs for so long. The urbanist Jane Jacobs long ago noted how cities, with their deep wells of intellectual and entrepreneurial capital, and their density and diversity, provide ideal ecosystems for entrepreneurial innovation. Nineteenth-century Pittsburgh and Henry Ford’s Detroit were the Silicon Valleys of their time.
Suburban tech parks, of course, aren’t all about to be shuttered. Big, established companies like Google, Apple, and Facebook need the large amounts of space that their suburban campuses provide. Company shuttles will continue to run between San Francisco, where more and more workers prefer to live, and Cupertino or Mountain View. But new entrepreneurial activity is increasingly bubbling up from within the urban core.
America’s “knowledge metros,” large and small, make up perhaps the biggest group of winners, overall, since the crash. Data provided by Economic Modeling Specialists International show that a handful of knowledge metros have an overwhelming lead in generating the high-wage jobs (those paying more than $21 an hour) that America needs. Nearly two-thirds of San Jose’s new jobs have been high-wage, as have nearly half of the new jobs in nearby San Francisco. San Jose also leads the nation in productivity growth, with a nearly 10 percent increase between 2009 and 2011, based on comprehensive data from the Bureau of Economic Analysis. Portland, Oregon, posted the second-highest level of productivity growth among large metros, nearly 7 percent, belying its Portlandia caricature as a place for slackers. Austin’s tech-fueled economy combined the fastest job growth of all large metros (10.5 percent between 2009 and 2013) with well-above-average growth in productivity and in high-wage jobs.
Job-Growth Change, 2009–13
College towns such as Boulder, Colorado; Ann Arbor, Michigan; Charlottesville, Virginia; Champaign-Urbana, Illinois; and Lawrence, Kansas, number among the nation’s leading centers for start-up activity on a per capita basis. And in general, college towns have combined low unemployment rates with stable economies. The strength of these smaller centers suggests that the future does not belong to large superstar cities alone.
Knowledge, it turns out, is what allows metros to generate good high-wage jobs. Across America’s metro regions, I have found that high-wage jobs are closely related to several key markers of regional knowledge economies: the share of adults who are college grads; the share of the workforce in professional, technical, and creative jobs; the levels of innovation and venture-capital investment.
That brings us to Washington, D.C. As the urbanist Aaron Renn wrote recently, Washington is well on its way to becoming America’s “second city,” on track to displace Chicago and Los Angeles “in terms of economic power and national importance.” Greater Washington has had among the nation’s lowest rates of unemployment, the most-stable housing prices, and high overall job growth since the crash. A whopping 59 percent of all new jobs created there since 2009 have been high-wage jobs, second only to San Jose. The Washington metro area includes six of the 10 most affluent counties in the nation.
Percentage Increase for High-Wage Jobs, 2009–13
Washington’s economy has clearly prospered from federal spending; lobbying and government contracts are significant sources of its wealth. But its economy is not entirely or even predominantly parasitic. The decline in the federal workforce over the past several years (a result of austerity) has not substantially altered the region’s economic trajectory. The ultimate source of the region’s wealth is Washington’s unparalleled human capital. The population is the best educated of any large metro’s in the United States; about half the region’s adults hold bachelor’s degrees, and nearly a quarter have graduate degrees.
Greater Washington is much more economically diverse than its reputation suggests. It is a major center for media and real-estate finance, and is home to a small but growing cluster of high-tech activity, in the city as well as in outlying Maryland and Northern Virginia. The greater Washington metro area consistently ranks among the nation’s leading centers of venture-capital-backed start-ups, alongside noted tech hubs like Austin, San Diego, and Seattle. For well-educated professionals, especially those with families, D.C. offers tremendous quality of life and a raft of opportunities at a fraction of Manhattan prices. And indeed, it is the southern terminus of the vibrant economic corridor stretching all the way up to Boston, which produced more than $2.5 trillion in economic output in 2011, more than all of the United Kingdom or Brazil.