Jobs Outlook Improving

Jobs are a very important determinant of our personal quality of life. Thus, it is not a surprise that I continue to emphasize new job creation in my economic writings and discussions.

According to the US Bureau of Labor Statistics (BLS), the nation’s businesses added 243,000 new jobs in January 2012 in a broad array of industries. The biggest job creators were in manufacturing, transportation, warehousing, professional and business services, and leisure and hospitality sectors of the economy. On the other hand Government agencies at all levels—federal, state, and local–laid off workers because of budget deficits. This was the fastest pace of monthly job growth since April 2011. The best news is that businesses remained the engine of job growth.

The U.S. unemployment rate now is at 8.3 percent compared to 8.5 percent in January 2012. (In August 2011 it was at 9.1 percent). The good news is that according to the BLS the unemployment rate is falling because people are actually securing new jobs rather than leaving the work force. However, the unemployment picture still remains troubling despite recent improvements. The number of unemployed workers has been declining because of recent job gains in past several months, but the total jobless number remains a painful 12.8 million people. This is the most painful legacy of the great recession of 2007-2009, the worst since the great depression of the 1930’s.

The current long-term unemployment problem involving 5.5 million workers, representing over 40 percent of the jobless, who have been unemployed for more than six months is serious and is unlikely to be solved via increases in demand for workers alone. It involves major structural problems in the American economy.

The biggest structural issue is the skills gap, and the gap is particularly severe in the STEM (Science, Technology, Engineering, and Mathematics) area. Other structural issues include disappearance of many jobs as a result of continued improvements in productivity as well as off-shoring of jobs to booming emerging economies that in many cases have lower labor costs as well as well skilled labor force, e.g. China and India. (For details see my book with coauthors Mary Walshok and Henry Devries—Closing Ameica’s Job Gap.)

Many who have lost their jobs in the recent economic disaster do not have the skills and training required for the openings. In addition, those who have the skills do not move to a new area because of reduced mobility. They either cannot sell their homes in a down real estate market or do not want to move to another location because of family and other personal reasons such as loss of friends and community.

There is a serious mismatch in our labor market and it is not easy to solve. The labor force is having great difficulty in adapting to the rapid structural changes in the economy brought on by rapid technological changes and the rapid demise of old jobs. There are also unrealistic expectations of many who have taken for granted that even in a rapidly changing world they will hold on to a specific job for their lifetimes. Today many skilled workers refuse to accept slightly lower paying jobs and prefer to remain unemployed in this tight labor market.

It is quite possible that some of the unemployed who are unwilling to move to another location may do so by the inducement of higher compensation. But higher pay is not always the answer, as there are clear-cut skill gaps in many cases.

The long term issue of structural unemployment, particularly in the STEM area, can be solved if we face up to this serious challenge instead of avoiding it or pretending that it does not exist. If we continue to avoid this issue we will continue to experience higher levels of unemployment than necessary for quite some time. We deserve better. I have discussed this issue at length in my forthcoming book – –Innovation:Key to America’s Prosperity & Job Growth.

Let me conclude this column by saying that the jobs data for the last six months has been encouraging.We still have a long ways to go lower the unemployment level.

Economy Should Be Brighter in 2012

The good news is that the 2012 economy looks relatively brighter than the economy of 2011.

Let me put on my economist hat and talk about what lies ahead:

• Consumer confidence skyrocketed to its highest levels in eight months in December, 2011; a positive sign for us heading into the New Year. The Conference Board’s latest news release (December 27, 2011) announced that its monthly Consumer Confidence Index exceeded expectations by jumping by nearly 10 points to 64.5 percent, up from a revised 55.2 percent in November.
• Consumer confidence matters a great deal since consumption amounts to nearly 70% of the economy.
• Jobs have been the most serious concern in the last several years. The good news is that the year 2012 is ending on an upswing – five consecutive months of net new job growth of 100,000 per month – the longest streak since 2006.
• There is more good news in the jobs area. The number of people applying for unemployment benefits in December 2011 is at the lowest level since April 2008 which suggests that layoffs may have nearly ended and hiring is most likely on the rise in 2012. Hopefully this is not just a seasonal quirk.
• The December 20, 2011 Associated Press survey of leading economists concluded that net monthly job growth in the next 12 months will be 177,000 jobs compared to an average of 132,000 jobs a month in 2011.
• Unemployment in 2012 will most likely be around 8.6 percent compared to 9 percent in 2011.
• The overall economy will grow faster in 2012 than in 2011. Expect the real GDP, the broadest measure of economic activity, next year to be at 2.4 percent compared to nearly 2 percent in 2011. This is a significant uptick but not enough to make a major dent in the ranks of the unemployed.
• Inflation and interest rates will remain low in 2012. This bit of very good news has not been noticed by analysts much in 2011.
• Recent housing data such as new home starts and existing home sales have shown improvement. The mortgage rate is at a long time low. Home prices have steadily come down according to the Case Schiller Index of 20 Metro areas. One would think that this is a great buyer’s market. But the housing industry has remained in the doldrums despite the economic recovery. Why? A major reason is high unemployment. The other reason is the continuing problems in the housing finance system. As long as the foundational problem of housing finance is not fixed, the industry will remain a lukewarm sector of the economy.
• Despite the nerve-wracking gyrations in 2011, the American stock market has remained a safe haven for the rest of the world as the S&P 500 Index heads toward a flat finish by the end of the year. The S&P index is ending the year significantly ahead of the stock market indices of Paris, Frankfurt, Tokyo, Shanghai, and Hong Kong. Why? There are several reasons. They include: 1) strong financial performance (profits) by American companies; 2) the Fed’s policies of low interest rate as well as injection of money into the economy; 3) the move by US investors to bring funds home in light of turbulence overseas.

The major downside risk facing the economy in 2012 is an external shock such as worsening of the debt crisis in Europe followed by a recession there. This may drag down the US economy as it is closely linked to the European economy. Other sources of external shocks could be centered in the Middle East.

The other major risk to the economy is the political gridlock in Washington that has continued to seriously hamper much-needed legislative progress relating to the US economy.

My conclusion: Things will be better in 2012—Guarded Optimism.

Can you Believe: A Shortage of Skilled Manufacturing Workers?

A recent Deloitte Consulting study concludes that nearly 83 % of manufacturers surveyed  report serious shortage of skilled production workers. In addition nearly three-quarters of the manufacturers report  that shortage of skilled production workers translates into adverse impact on productivity as well as plant expansion .It means passing up of new business opportunities .

According to the Wall Street Journal (Nov 26-27,2011), AAR Corporation,a Chicago based aviation-parts manufacturer has currently 600 job openings in welding and maintenance mechanics.These jobs do not require college diplomas but require mechanical skills and pay well.The company is unable to start a third shift but can’t do it because of shortage of skilled workers.

Skilled worker shortage has ripple effects.When businesses can’t expand because of lack of skilled workers means fewer opportunities for less skilled workers such as security personnel,forklift drivers, maintenance and janitorial staff.It also adversely affects those who work in the supply chain such as parts suppliers.

In most economic recoveries there is the problem of mismatch of skills between available jobs and job seekers. In the aftermath of the great recession of 2007-2009 the mismatch has been huge.Why? Partly it is because of demographics.Manufacturing employment peaked in the 1980′s and those who were hired then are nearing retirement now and replacing them has been a great challenge because of disappearance of vocational education at the high school level.In addition in-company training via labor unions has eroded.

Another reason for the lack of supply of trained workers in manufacturing has been the declining attractiveness of  blue-collar jobs  to young people.In addition parents have not encouraged their children to seek work in manufacturing because of lack of societal status and perceived instability of the manufacturing sector. According to another Deloitte study this attitude has  existed despite the fact that a large majority of Americans think that a strong manufacturing sector is important for America.Only one out of three would support their children to have a career in manufacturing.

Finally some companies themselves are a factor underlying the problem as they have become fussy in their hiring because of a weak economy.Acording to Manpower Inc,a worldwide staffing company, with weak demand for their products businesses have become pickier in choosing candidates.They only hire those who fit the job description completely.If they can’t find such candidates they postpone hiring and leave the job unfilled and hope for better times to fill the vacancy.

Dana Saporta, economist with Credit Suisse,estimates that economy wide  structural factors such as lack of skilled workers enhance the rate of unemployment by 1.5%. (WSJ,Nov.26-27,2011) .Without the structural problems in the economy the unemployment level  today in America will be 7.5% intead of 9% .

Are Technological Advances Always Good for Jobs?

The conventional view for a long time has been that technological advances displace jobs in the short term but creates more jobs in the long term. I have also shared this view over the years as an economist.

In a  recent book  two well known MIT scholars, Erik Brynjolfsson and Andrew McAfee, question this view. They  suggest that rapid advances in information technology is enabling business leaders and company founders to reap rich financial rewards by replacing people with software in services businesses and by replacing workers via automation in factories.

They ask the question: why did sixty percent of the wealth created in the US, between 2002 and 2007, go to one percent of the population? Their answer: it did not happen just because of financial deregulation, or Bush era tax breaks; it happened because information technology (IT)  has made  possible far ranging sale of digital products and record expansion of software-aided management.

In an October 2011, article in MIT Technology Review,author David Talbot quotes Eric Brynjolfsson–”Technology lets  superstars—whether Mark Zuckerberg or Lady Gaga or a hedge fund manager—leverage their skills and talents across far more assets than they could have done previously. You can distribute bits—costlessly,globally, instantly—in ways you can’t distribute atoms. Anything that is digital from software to music can reach a much broader global audience. This is also true for the business processes that you embed in software. CEOs and others are leveraging that.”

The salient point in the book is that the dynamics stated above explains how productivity and economy can grow  while employment shrinks. In other words, technology can grow the economic pie, but it does not mean that everyone is better off.

Nobel prize winning economist Robert Solow’s view is that advances in technology always eliminates jobs, but American economic history shows that total employment and wages  always rises over time. He suggests that it may be too soon to tell if that will not happen again.

In 1800, ninety percent of Americans worked in farms, and by 1900 that number had dwindled to forty-one percent as a result of new technology and opening up of fertile farmlands in the Midwest.Workers adapted to this massive structural change, but it took a century. This time around the speed of  IT change  is so fast that our workforce , education and training systems are  not able to keep up with it. The result is the current job crisis that may last several years.

Coping with this massive structural change is one of the great challenges America faces in the second decade of the 21st century.

Schools Need to Offer Many Pathways

 

According to the California Department of Education, nearly a third of our ninth-graders drop out before graduation. A third finish high school but lack the academic training and technical skills to succeed in college or in a career. According to the National Center for Public Policy and Higher Education, the remaining third graduate on time and move on to post-secondary education.

The shocking data indicates serious problems with our high schools. However, there is little consensus about what to do. Many solutions have been proposed over the years. They include ratcheting up of academic standards, college prep curriculum, smaller schools, charter schools, greater program accountability and performance-based fiscal incentives.

With sound implementation, most of these policies can yield good results. The problem has been that each of these solutions is offered in piecemeal fashion and, therefore, falls short of improving high schools.

A February 2011 Harvard report – “Pathways to Prosperity” – states that America’s high schools are wedded to a single pathway to college. The report suggests it makes better sense to provide diverse high school options for America’s youth. Gary Hoachlander, president of ConnectEd, has defined several principles underlying the implementation of multiple pathways for our high school students:

• A pathway should prepare students for the full range of post-secondary opportunities ranging from universities, four-year colleges, community colleges, apprenticeships, to formal employment training.
• A pathway should connect challenging academic courses to real-world experiences.
• A pathway must exhibit significant student accomplishments in academics, critical thinking, problem solving, communications, technological literacy, and cross-disciplinary fields necessary for success in the highly competitive global economy of the 21st century.

These principles have been adapted by ConnectEd (CEd) in their high-school improvement program known as Linked Learning: Pathways to College and Career Success. It acts as a hub for the Linked Learning field in California. It develops tools, supports demonstration projects, provides technical assistance, leads collaborations, and promotes pathways for preparing students for college and career success. The CEd Linked Learning pathway offers a multiyear program of study that has four key components. They include:

1. An academic core required for admission to the CSU system – English, mathematics, science, social studies, and foreign language;
2. Four or more technical courses;
3. Work-based learning via mentoring, job shadowing and internships;
4. Counseling and academic instruction supporting project-based learning.

CEd provides financial support, technical assistance and coaching for school districts in implementing Linked Learning pathway projects. They are currently working intensively with nine large California school districts: Antioch, Long Beach, Los Angeles, Montebello, Oakland, Pasadena, Porterville, Sacramento and West Contra Costa. The organization has awarded nearly $12 million in grants to school districts in California with support from The James Irvine Foundation. The school districts mentioned above have received implementation grants of more than $1 million each.

While Linked Learning is not the norm in California, it is a success in existing state-supported career academies in terms of higher passing rates in high school exit exams in the sophomore year, higher completion rates for challenging courses that prepare students for entry into the state college system, higher high school graduation rates, and higher income eight years after completing high school relative to their peers.

The good news is that Linked Learning has gained broad-based support in California. Linked Learning Alliance – a statewide coalition of a large number of education, business and community organizations – brings together a collective voice and effort to enhance access to Linked Learning.

In a recent conversation Gary Hoachlander said: “Within the next seven to 10 years, CEd’s goal is to make Linked Learning pathways available to at least half of the high school students in California. Precise numbers are hard to come by, but probably no more than 10 percent of California high school students are currently participating in high-quality pathways that meet the certification criteria we and our partners have developed for Linked Learning.”

With so much at stake for California we must be willing to implement successful models such as the one described above throughout our educational system quickly and effectively. Our high school students can’t wait – their future is at stake, too.

Bi-weekly “Global Village” Column Wraps Up

I have written bi-weekly “Global Village” columns on the economy for the Contra Costa Times (and associated papers) for the past 22 years. It is now coming to an end. I will miss the column but I am glad that it will free me up to do many other things that I have missed doing – including keeping my blog up to date. No more deadlines every other week. I am happy to report to you that I have never missed deadline in all these years.

I am working on a book that will be a collection of approximately 100 of my columns my readers and I have liked best. I hope to publish it by the beginning of 2012. I will let you know more about it as we complete the project.

Thank you for your helpful comments over the years. I appreciate it. I encourage you to follow my blog as I will be more actively writing going forward. Please comment and subscribe!

Plenty of Reasons for Economic Optimism

The recent downward revision of 2010 second quarter economic growth rate from 2.4 percent to 1.6 percent has once again heightened the buzz about a double dip recession. I think that it is premature to talk about the reversal of the economic recovery that started middle of 2009 based on data for one quarter.

The Fed’s official forecast of economic growth for 2010 is in the 3 percent to 3.5 percent range. The latest Economist magazine forecast for 2010 also stands at 3.0 percent. These by no means are stellar numbers but clearly indicate a modest recovery from the worst recession in our lifetime.

My concern is that continued cynicism and pessimism about the future of the economy may become a self fulfilling prophecy. It is one thing to describe a situation as a glass half empty but to deny the fact that the glass is half full is a highly risky state of mind.

A recent study by the Milliken Institute of Los Angeles concludes that the American economy remains flexible and resilient and will continue to perform modestly and remain sustainable. The study forecasts real economic growth for 2010, 2011, and 2012 at3.3 percent, 3.7 percent, and 3.8 percent respectively.

To me the all important numbers are job growth as that is our fundamental personal connection to the economy. The Milliken Institute forecast on job growth for 2010, 2011, and 2012, respectively are1.5 million, 3.1 million, and 2.6 million. This is welcome news but still does not make up for the more than 8 million lost jobs in the recession. Job growth will continue to be America’s number one challenge in the coming years. It is now a serious structural problem and not just a traditional cyclical issue. It will be a while before we return to a new “normal” in the level of employment.

There are several factors that bolster the conclusions of the Milliken Institute forecast. These include:

1 – Strong uptick in US exports because of rapid growth in Asian economies such as China and India with 2010 economic growth at 9.9 percent, and 8.0 percent respectively. Other Asian economies with strong economic performance in 2010 include Indonesia (5.9 percent), Malaysia (8.8 percent), Singapore (12.3 percent), and South Korea (6.3 percent).

2 – The European sovereign debt crisis, which several months ago triggered the initial buzz about a US double dip recession has abated considerably as indicated by a recent business and consumer survey of the Euro countries that suggests widely felt optimism about the region’s improving economic situation. The 16 member Euro Zone expanded at an annual rate of 3.9% with Germany leading the pack with an economic growth rate of 9 percent in the second quarter of 2010 (WSJ, August 31,2010). Steady job market and declining unemployment in Germany, Austria, Finland, and Italy will give a boost to the consumer goods industry. Stronger economic performance in Euro Zone will soften the adverse economic impact of budgetary austerity currently being pursued by the Euro economies.

3 – Beyond the 16 country Euro Zone, the United Kingdom has outperformed the US economy in recent months, and Sweden expects a healthy economic growth of 4.5 percent this year.

4 – The US Conference Board’s Confidence Index for August 2010 rose 2.5 points to 53.5 from 51.3 in August beating analysts’ expectations. This is good news for the sale of consumer goods.

5 – In addition rising US business confidence is resulting in robust spending on software and equipment.

6 – The US manufacturing industry has continued to expand for the last thirteen months. The Institute of Supply Management‘s (ISM) manufacturing index rose to 56.3 percent in August 2010 from 55.5 percent in July 2010.(A number above 50 indicates expansion).Key factors driving manufacturing in recent months include the rise in exports as well as business spending on capital equipment and supplies. I think that the steady rise in the manufacturing sector has been a key driver of the current recovery.

7 – The latest job data from the US Department of Labor reports that private employees added 67,000 new jobs in August 2010.This was more than the 41,000 expected by a poll of professional economists taken by the well known Thomson Reuters firm. The other positive jobs news from the Labor Department included upward revisions to June and July jobs numbers.

8 – Interest rates have been at record low with the core CPI at 0.9 percent. With inflation for 2010 expected to be around 1.7%, the Fed has been able to keep short term interest rate (Fed Funds rate) slightly above zero, which translates into a negative interest rate if we figure in inflation. This has encouraged economy wide borrowing. There is a good chance that the Fed Funds rate will remain low well into 2011 as inflation is not likely to be a threat at least in the next 16 months.

Finally, let me suggest that a double dip recession now is unlikely. History is on our side. Robert Shiller of Yale University in a May 2010 New York Times article stated that in the past when a recovering economy has recorded three consecutive quarters’ of real GDP growth, it has never slumped back into a recession after a short interval. This has been the case since 1947 when quarterly economic data series were initiated.

The good news is that so far in this recovery we have had four consecutive quarters of real economic growth (GDP) and the economy continues to grow at a modest rate. There is sound basis for Shiller’s observation. Giant economies are like freight trains; they do not stop suddenly on their tracks.

If we have a double dip recession I think it will probably happen because of self fulfilling prophecy based on fear and pessimism.

Economic recoveries such as the current one that is following a brutal recession triggered by the bust of two of our major economic sectors – housing and finance – do not proceed smoothly. Encountering potholes and road bumps should not surprise us as we continue on the road to recovery.

Incentives Needed for Effective Job Creation

In a recent Bloomberg Businessweek article, Andy Grove, co-founder of Intel and a Silicon Valley icon, addressed America’s most pressing challenge: job creation.

His concern is that we are placing too much faith on startups alone to create the millions of new jobs needed in the U.S. His point is that, categorically, startups by themselves are not enough to create a sufficient number of new technology jobs. His answer is to focus on companies in the “scaling up” stage – when new ideas and technologies transition from prototypes to mass production. This makes sense as more jobs are created in the scale-up stage than the initial startup phase of a business. Let us not forget, though, that startups are the foundation of our economy. Without them we would not have a market economy. In the absence of startups, the issue of scaling up becomes moot. Supporting businesses in both stages is important.

The key is to support scaling up that occurs in the U.S., not overseas. When businesses scale up these days, it’s not in places like Silicon Valley or other tech-innovation regions or manufacturing centers across the U.S. It’s happening in Asia because as wages and other production costs rose over the last few decades, American firms moved their production and engineering jobs offshore, mostly in China. This has raised business profitability and enhanced stock prices making management as well as stockholders happy, but, the great American job machine has been hurt by the offshoring of manufacturing-related jobs.

Specifically, the great American job machine has been broken by the offshoring of manufacturing-related jobs. Not surprisingly, a massive computer manufacturing industry has risen in Asia that today employs nearly 1.5 million workers. Today, the giant Chinese manufacturer Foxconn (annual sales: $62 billion) employs nearly 800,000 workers. Foxconn is now larger than the American high-tech giants Microsoft, Hewlett Packard, Intel and Dell.

This story is repeated in the vital and innovation-rich cleantech industry. For example, in photovoltaics (PV – converting solar energy to electricity), an industry pioneered in America from its very inception, we now import a large percentage of panels from abroad. The U.S. employment today in the production of PV panels and films totals only 10,000—a small percentage of total worldwide PV jobs.

The offshoring of jobs has not been win-win for all, particularly American workers. One profound long-term impact that is often ignored is that when we lose manufacturing jobs, we also end up losing development jobs, and ultimately we offshore research. We then lose industry know-how and experience and finally we lose the whole industry. I disagree with what many well-known analysts have been saying for a while: manufacturing doesn’t really matter. I disagree and say: manufacturing matters and it matters a whole lot. We should try our best to keep manufacturing jobs at home. To accomplish this, we need to develop and implement job-retention strategies and policies.

Although I agree with much of Andy Grove’s analysis of the American job situation and the importance of businesses in the scaling up stage, I disagree with his prime policy recommendation relating to the offshoring of jobs overseas. His suggestion is that we levy a tax on products created by offshore labor and keep that money in a separate fund known as the “scaling bank.” This fund would be used as an incentive to support American companies that desire to scale-up their operations to do so in America. This sounds like a good idea but such a policy would likely trigger a trade war and no one would win. I am against such a proposal.
A related question is: would this fund be sufficient incentive to discourage offshoring operations to Asia where lucrative markets in the fastest growing region in the world beckon American companies to establish a foothold? I believe that this fund would quite likely be insufficient to offset the lure of offshore benefits. Of course the outcome depends on the level of taxation.

Instead, I resonate with a recent proposal from Peter Navarro, business school professor at UC Irvine, who suggests lessening the double taxation burden on American multinationals (MNCs). MNCs serve as an important channel for U.S. exports yet currently pay U.S. as well as foreign taxes. Avoiding this double tax burden is an incentive for many MNCs to move their corporate offices overseas. That does not help our economy.

I also suggest offering a tax break tied to job creation for U.S. corporations planning to scale-up their operations. This could be further enhanced by state tax breaks for scaling up efforts that generate new jobs. Finally local and regional economic development organizations could provide other inducements to support scale-up efforts such as faster permitting processes as well as assistance with plant location and expansion processes.

If we are serious about solving our job creation challenge then it is critical that we provide new incentives for businesses to scale up here in the U.S. in order to grow and retain domestic jobs.

Fostering Startups is Key to Job Creation

Jobs are our fundamental connection to the economy. A job not only provides us with our livelihood, it is also an important factor for our well being. It is the basis of our social status and a major determinant of our identity in today’s world. The serious recession of 2007-2009 has hit us where it hurts us most: our jobs, our real economic health.

At the macro level, the gross domestic product (GDP), the broadest measure of economic activity, has recovered from the recent recession and most analysts expect to see a real economic growth rate of over 3 percent in 2010. The economy has also added nearly 800,000 net payroll jobs between January and June of 2010.

At the same time, unemployment has remained high at over 9 percent. For every worker without a job, the unemployment rate is a very personal statistic. To get down to a 5% unemployment level, which has been the norm for our economy for many years, the U.S. has to create millions of new jobs – millions of jobs for those who are currently unemployed and millions more for recent entrants into the labor market.

Clearly our biggest challenge today is new job creation. The question is: where will they come from? An answer was provided by a Kauffman Foundation research paper released in November 2009. For the last thirty years, young companies (less than five years old) have provided most of the net job growth in the U.S. But what about the job contribution of large established firms? While large firms do create jobs, much of this job creation is negated by layoffs and mergers and acquisitions. In other words, net job creation by large firms in the aggregate is very small, if not zero.

But there is still a nagging question. What about all of the startups that fail? Although new and young firms are terrific job creators, this category of business does suffer from a high rate of failure. The only way this category remains a job creator is that there is a high rate of growth in the number of startups – therefore a high growth rate of startups is critical for net job creation in our economy.

Digging deep into the job creation dynamics of our economy (U.S. Census Bureau Business Dynamics Data Base), a March 2010 Kauffman Foundation study found that among the total population of young startups, there are a few that show extraordinary rates of job creation. These highest flyers, also known as “gazelles”, give rise to a disproportionately high number of jobs in the economy. While they represent only about 1 percent of all companies in the economy (about 55,000) but account for around 40 percent of new jobs in any given year. A second tier of fast-job-growing firms – the top 5 percent in the economy (273,000 firms) – create approximately two-thirds of the new jobs in any given year. Undoubtedly, if we are serious about rapid job creation, we need to focus more on fast-growing startups.

It is important to remember that not all gazelles or fast-growing firms are immune to failure; many fail, but many also survive for years and sometimes become iconic firms of the future such as IBM, Google, or Apple, or Intel, and Microsoft. In their early years as they scale up, gazelles create large number of jobs and this is what is important for our economy. The scaling up process is where most jobs are created. Hence we need to focus on strategies that assist and support companies that want to expand their operations. This must be our prime job growth strategy in the 21st century.

For our job-starved economy, the national and regional policy imperatives are fairly straightforward. They include:

1. Help create business startups making sure that entrepreneurs in the region have access to investment capital, access to innovative ideas from universities and think tanks and other elements of a successful innovation ecosystem. By simple arithmetic, creation of a sufficient number of startups will boost job growth.

2. Implement tax incentives for startups as well as for companies that are in a “scaling up” stage. In addition, simplify regulation and simplify the business permitting process.

3. Finally, help promote and facilitate the transfer and commercialization of cutting edge technology from research universities and think tanks to the private sector.

Let us not forget that ultimately entrepreneurs will lead us out of the current job recession.

Barcelona’s Extraordinary Innovation District

Today conversations about Barcelona are more apt to evoke discussion of the Academy-Award winning movie “Vicky Christina Barcelona,” starring the stunning Penelope Cruz, than talk about the other striking attributes of the second-largest city of Spain.

Travelers who are familiar with this city know about the unique and distinctive architecture of Antoni Gaudi as well as the influence of great artists like Pablo Picasso and Salvador Dali. Visitors to Barcelona remember the astounding still to be finished Gaudi cathedral — Sagrada Familia, the unique Gaudi created mansion Casa Batillo on Passage de Gracia, and the long walk down Las Ramblas which eventually meets the Mediterranean Sea.

Barcelona is more than a tourist haven. Today it is Spain’s chief commercial and industrial hub in addition to being its largest port. The key manufacturing industries include textiles, airplanes, machinery and electrical equipment. The city is well known in Europe for its design and style. It is also an important banking and financial center. Barcelona has several major universities in addition to many other educational and research institutions.

The city government is busy preparing itself for leadership among world metro areas in the 21st century via the rapid development of an innovation district known as 22@Barcelona in a former industrial district by the sea. The project is large and ambitious and focuses on massive infrastructure development including housing, social amenities, smart urban transportation, fiber-optics connectivity, 21st century pneumatic waste collection and state of the art heating and cooling systems. Although a large amount of funding originates from the government, iconic Spanish businesses including La Caixa (a major bank), Telefonica, Abertis, Agbar, and Gas Natural are also major investors in this project.

The innovation district focuses on the development of five strategic industries that include media, IT, hi-tech medicine, clean-tech, and design. Since its inception in 2000, the innovation district has attracted nearly 1,000 companies with 32,000 jobs in these five industry areas. The success of one of the most ambitious urban development projects in Europe is based on the fact that it combines working and living with education, culture, leisure and entertainment.

The European City Monitor in 2006 rated Barcelona as one of the most attractive cities in Europe for quality of life for employees as well as a choice for companies wishing to relocate. Barcelona is an increasingly popular destination for highly educated professionals and creative people. The innovation district wants to capitalize on this trend. There are few projects of this kind and of this magnitude in the world today except for One North in Singapore and Hafen City in Hamburg. Josep Pique, the CEO of 22@Barcelona, proudly suggests that, “it is today the model for similar developments in Buenos Aries and Cape Town.”

In a recent conversation, Jerry Engel, the Executive Director of the Lester Center for Entrepreneurship and Innovation at UC Berkeley, shared his insights on the project: “22@ is an audacious innovation about innovation! Rebuilding an entire live-work community around the concept of sustainable innovation as a way of living. They have rebuilt this old early 19<supth</sup century industrial community from the infrastructure below the street to the Universities, Research Parks, Hotels, Office Buildings and Apartment houses. Quite an accomplishment by a far sighted municipal government.”

The current recession in Spain does not appear to dim the enthusiasm for this exciting project in Barcelona. They seem to be looking beyond the end of the downturn to another economic renaissance driven by continuous innovation and what better place do it than a large, sophisticated, mini city inside one of the most dynamic metropolitan regions of Europe.

I continue to be impressed by the enthusiasm in Spain about building large scale infrastructure projects, whether it is 22@Barcelona or the high-speed AVE train system that is beginning to crisscross a large part of the country. Today sleek and luxurious high-speed trains travelling at speeds of more than 180 mph (unthinkable in the U.S. in the near future) connect downtown Barcelona with downtown Madrid. Travel time is a little longer than 90 minutes. You do not have to go through time-consuming security checks at airports and long and tedious taxi rides into the city.

What is most impressive to me is that the country's goal is to eventually develop the most extensive high speed rail network in Europe.

It is my firm conviction that investment in smart infrastructure and continuous innovation in business as well as in government will be crucial to a country's prosperity in the 21st century. The story of Spain is encouraging. There is an important lesson for us in Spain’s leadership in the building of large scale innovative infrastructures even in difficult economic times.
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Tapan Munroe, PhD, is an economist. The contents of the blog reflect his opinions.