Resilient Communities are the Foundations of a Resilient America.

The Death of Growth, or, How I learned to Stop Worrying and Love the S-Curve

Robert Gordon, an eminent economist (Did God really create economists to make palm readers look good?) at Northwestern University, has become famous for his bleak projections of our economic future (e.g., he has a highly viewed TED talk).  If he’s right, our communities will be less resilient – more people, but fewer resources.  But is he right?

His argument is based on four “headwinds” slowing down economic growth:  demographics, education, debt and inequality.  Let me try to play back his arguments.
Demographics:  US growth in the ’60s, ’70s, and ’80s was fueled by the growth in productivity we experienced.  A large part of this was the influx of women into the workforce.  However, with the graying of America, we are seeing a real reduction in the workforce.  Real median household income has dropped about 10% from its peak.
Education:  Education – and its corollary, innovation – is becoming much harder to sustain.  Costs are rising even faster than for health care, while retention rates are significantly less than our “peers” (e.g., 15% less than Canada’s institutions of higher education).
Debt:  Our federal debt is greater than our GDP.  State and community pension and health benefit shortfalls may be as much as 50% of GDP.  Dollars that we could invest in ourselves must be used to service our debts.
Inequality:  Forgot the chasm between the 1% and everyone else. There is a widening gulf between the educated and the uneducated; the upper 30% and everyone else.

Gordon couples these headwinds with an assertion that innovation has peaked.  In his view, we can no longer expect innovation to overcome these headwinds.  He is not saying that invention and innovation will stop, only that the pace of innovation will be relatively slower.

There is certainly evidence abounding to support his thesis, but  I think he is wrong, at least in saying that the decline is inevitable.  A big part of my thought is based on the S-curve (see http://www.marctomarket.com/2012/04/great-graphic-gdp-and-longevity.html for an example).  If we look at things like life expectancy, poverty (http://filipspagnoli.files.wordpress.com/2008/08/poverty-and-gdp-correlation.jpg), even recreational drug use vs GDP for the countries of the world, you’ll find an S-curve.  At the left, you find a very low value of life expectancy (for example) for the poorest countries which climbs steeply as a nation’s economy grows from subsistence levels.  However, at some point, that steep rate of rise levels off, and the correlation with GDP becomes much weaker.

If we apply the S-curve to the US population, we find that we have a large portion of our own population who really don’t contribute to our GDP (e.g., 20% of the population – primarily minorities – in northern Ohio contribute less than 2% to the regional GDP).  While many might see it impossible to increase their participation, I disagree.  Based on recent data (www.governing.com/blogs/view/col-cities-regions-entrepreneur-inclusive-competitiveness), there is rapid growth in the number of minority entrepreneurs (60% among African-Americans, 44% among Latinos 2002-07).  African-Americans college graduates are one-third more likely to get MBAs than their Caucasian peers.  

These budding business owners have not been as productive as might be expected, though, primarily because of a lack of investment capital for minority businesses. Too often, they’re a one-person shop.  But a new approach is  aimed at changing that – “inclusive competitiveness.”  It’s been highly successful in Cincinnati, and is being eyed by Cleveland and northern Ohio, and other Rust Belt areas, as a potential game-changer.

The concept is simple – organize around existing or emerging clusters, with a hard-nosed drive for inclusiveness.  Our metro areas are our centers of innovation, and also where most of our minority populations live.  They represent a largely untapped resource for urban “innovation economies.”  If we can plug them in, their contribution could mean US economic growth that could well dwarf that of the second half of the last century.

Will it happen?  None of us knows for sure.  But I do know that this is an idea that makes sense, and – if communities have the will to do so – will lead to a Rebirth, not a Death, of growth.  And with that, more resilient communities.