I exited college during the severe recession of the early 1980s, making graduate school seem attractive, and then exited graduate school during the housing bubble of the late 1980s. Having had a housing markets class in graduate school, realizing the bubble (like this one) would burst, but unsure how long it would take, my wife and I had a plan. We would live as cheaply as possible, save our money, and then move to a metro area in reasonably-priced Upstate New York, where we had attended college and actually liked the cool summers, lovely falls, and snowy winters (we won’t talk about March, April, and May). For a variety of reasons – our increasing ties to the city and the end of the bubble here included – it never happened. But one factor was we found that none of the Upstate metro areas had a large and diverse enough labor market to allow us to have careers. Perhaps we could get a job, but it might be the job, and it would be very difficult to get another one without moving. In other words we didn’t move to Upstate New York, in part, because none of the Upstate Metro areas, by itself, is a significant place anymore. That is a problem Upstate will have to overcome.
Metropolitan Buffalo had 1.2 million people in 2000. Greater Rochester had just over 1.0 million. The Syracuse area had just 650,000, with about 300,000 in Greater Utica and 250,000 in Greater Binghamton. All of these areas are too far away from the state’s economic engine, Manhattan, to derive any spinoff benefit other than redistributed state taxes.
Metro areas this size provide plenty of alternative employers for those working in large, local consumer driven industries such as education, health care and retail trade. And those working in such industries can live in an Upstate Metro area and expect to stay there. Local consumer industries, however, do not bring money into the region from outside and drive growth, while the outward-selling industries that do rely increasingly on specialized skills provided by high-paid workers. Upstate has trouble attracting such workers, and has fewer and fewer such jobs. The top-paid employees of branch plants tend to fall into that category, but in small metro areas like those Upstate they often have to move to advance their careers, and have few ties to an area. Meanwhile, redistributed taxes are increasingly Upstate’s main economic base.
Having an agglomeration in one particular industry is one way to get around the problem of size. Metropolitan Charlotte, North Carolina, for example, had only 1.3 million people in 2000, but it also had a concentration of banking jobs. So one could live in the Charlotte area and have a significant range of employment opportunities, provided one works in banking. Regional specialization, however, carries its own risks in the event of a significant sectoral change, particularly if that specialization is concentrated in just a few large corporations. Buffalo’s concentration of employment in steel and autos hasn’t been an asset given the steep employment declines in those industries. Rochester’s concentration in precision instruments also didn’t protect it as technology shifted from electromechanical to electronic and local firms were slow to make the switch.
I was told by a Kodak executive I met while on vacation that the firm, fat and happy with film, decided the shift to digital would be slow because of the high price of digital cameras, especially in poorer countries. Kodak, evidently, failed to notice that the price of electronic goods tends to plunge as soon as scale economies are achieved. Why didn’t some Kodak researchers, fed up with having their digital projects deferred, form their own company? That’s what they do in Silicon Valley. Corning hasn’t spun off much on the Southern Tier either, despite all its waves of hiring and downsizing.
The self-employed, those who start new businesses, can choose their location, and could therefore choose to live in Upstate New York. On what basis do they choose their location?
The economic location textbooks I read in graduate school analyze a wide variety of cost and revenue factors, including labor cost and availability, transportation cost, taxes, energy costs, space costs, market size, market price, etc. to explain business location. At the end of the textbooks, there is a discussion of something called the “golf course” effect – the frequent determination of a businesses’ location based on the desire of the decision maker to have an office in close proximity to their favorite golf course.
As the economy has evolved, in my view, all the cost and revenue factors have become less and less important because they have become more and more homogenized, at least within the United States – leaving the golf course effect, the individual preferences of decision makers – as the remaining factor. And what is the main component of this effect? It comes down to wanting to locate near “people like us.” My observation is that for corporate branch offices and plants, the key “people like us” factors are race and class (education), with race more important to establishments employing those at the low end of the pay scale and class more important at the top end. Entrepreneurs, however, are unusual people. Thus, the “people like us” effect is not a decision to locate away from people who are different, it is a decision to locate near other entrepreneurs. My observation is the more there are, the more there are, perhaps because the idea of starting a business diffuses locally.
There is one thing entrepreneurs need, however – a market. And the more specialized their product or service, the harder it will be to find a sufficient market in one metropolitan area, especially if it is small. The new companies with big employment upsides tend to start out serving customers within a local market, expand to a regional market, and then go national and even international (or get purchased by an existing international firm). In the massive New York Metropolitan area, with its more than 18 million people, just as I know there is always another job at another stop on the subway, so those choosing to start new businesses know there is always another customer a short distance away. If you can’t make it here, you can’t make it anywhere. Upstate, meanwhile, it is no surprise that two of the most successful firms of recent years, Price Chopper and Wegmans, have been supermarkets, because even in the smallest metro area there is a large market for food. Starting a new business with a more specialized good or service in a market the size of Rochester or Buffalo is more difficult. They are just too small.
Could this Upstate liability be overcome? Only if the metropolitan areas of Upstate New York can somehow be thought of, and function as, just one big place – one labor market, and one market for business, with four million people. That is more than the population of Minneapolis-St. Paul, one of the few successful metro areas in the “rustbelt.”
How can this happen, and what can the state government do to enable the shift? Perhaps the internet means one can live in Syracuse and work in Buffalo, commuting across two days per week. Perhaps local businesses taxes can be regionalized in order to encourage local communities to work together rather than against each other on economic issues. Perhaps the region’s media could integrate, with once source of information all of the Upstate metro areas combined. Perhaps a new, region-wide business organization could be formed, with membership limited to new, growing firms. Perhaps all that is required is a difference in attitude about the region, among both those inside it and those outside it. Perhaps it’s a matter of hype and PR. Or perhaps what is required is having someone to speak to and for Upstate, the way the Mayor does in New York City.
A region-wide identity merger would, I understand, be hard to swallow, since the Binghamton, Syracuse, Rochester, Utica and Buffalo areas all have their own histories and their own regional pride. And, they each have their own politicians with their own little kingdoms. But face it: Syracuse is not going to be able to attract business biotech businesses in a straight-up competition with the Triangle area of NC. While there are some new firms in the area, in Syracuse that industry is primarily driven by one big old drug company looking for subsidies, not a lot of new small ones looking for opportunities. The situation in Rochester and Buffalo is similar.
Speaking of the Triangle, it sits near the center of one of the most successful collections of small, growing metro areas in the country, including Richmond, Virginia, Charlotte, and Greenville, South Carolina. The Triangle’s Raleigh and Richmond are both state capitals, benefiting from an influx of tax dollars the way the Albany area does, but Charlotte and Greenville are not. What is driving their growth? Well, the real estate literature increasingly talks of businesses opening and locating not in one of these metro areas alone, but in the I-85 corridor. And the distance between Richmond and Greenville is farther than the distance between Albany and Buffalo.