Regeneration Economies: A New, Innovative Way to Approach Economic Development

1. Regeneration Economies: A New, Innovative Way to Approach Economic Development Geoffrey J.D. Hewings Regional Economic Applications Laboratory University of Illinois 607 S. Mathews, #318, Urbana, IL 61801-3671 217-333-4740: fax 217-244-9339 www.real.uiuc.edu: hewings@illinois.edu Celebrating 25 years in 2014

2. Institute of Advanced Studies Congratulations to Vice Chancellor David Eastwood and Professor Malcolm Press on the development of the Institute Hope that it will be a successful venture and help burnish Birmingham’s growing stature among the world’s best universities

3. Major Objectives of the Birmingham-Chicago Comparative Analysis Unraveling the complexity of regional economies Integrating macro and micro approaches within the framework of Regeneration Economies. Understanding and Forecasting the key drivers behind growth in regional economies Evaluating the role can of policy play in stimulating local economic growth Connecting the dots linking skills enhancement, innovation policy, strategic investment in infrastructure to help transform regional economies. Lessons learned from the comparative experience of Birmingham and Chicago Role of institutions of higher education in the process

4. Why Birmingham and Chicago? Critical need to understand the complex dynamics of two metropolitan regions that are the centers of their respective broader regions (Midwest, West Midlands) facing a regeneration of their economies Need to provide policy makers with analytical tools and insights into the expected outcomes of international and national changes in competitiveness, innovations and policy initiatives.

5. Birmingham and Chicago • Both regions have faced enormous structural changes in the last three decades dominated by the massive reduction in manufacturing employment. • Recent evidence for a modest resurgence in employment not only in manufacturing but other sectors provide the motivation: • for understanding the sources and stimuli for this nascent regeneration, • the identification of appropriate policy interventions by local and regional government to sustain and enhance this growth and • critical role that timely information and analysis can provide.

6. Birmingham and Chicago: Scope of Work • Development of comparable models of the two metropolitan economies to enable • economic impact assessment, forecasting and evaluation of a range of alternative policy scenarios about changes in the external (nation, world) economies • potential impacts of initiatives designed to enhance the competitive positions of both economies. • A secondary focus will explore the nature and extent of trade between the two metropolitan economies and the broader regions they anchor • A third focus will examine in depth a set of key or critical sectors in both economies with significant analysis and data collection at the firm level. • A fourth focus will examine the role of labor force training and innovation initiatives and a comparative analysis of policies adopted by both regions and their outcomes.

7. Production Block 1 Service Link Production Block 2 inputs markets Stylized Facts: Cities and Their Regions • Cities at one and the same time becoming more competitive and more complementary as a result of: • Hollowing out • Average establishment in a city is now buying more from OUTSIDE the region and has markets that are increasingly located OUTSIDE the region • Internal ripple effects from change in activity levels now smaller • Fragmentation • Firms are re-organizing the geography of production by separating production into distinct components to exploit scale economies and reduced transportation costs

8. Stylized Facts: Cities and Their Regions (2) • Cities have transformed from being relatively self-contained (serving limited geographical market) to interdependence over very broad geographical areas • Firms: • Exploitation of scale economies • Specialization within plants – but exploiting scope across plants often in different locations • Consumers • Increasing love of variety • Locational and consumption preferences changing with age and income • Intercity trade growing much faster than growth of Gross City Product • Value chains of production now more geographically extensive

9. Understanding the Regional Economy • How do our economies function? • Policy often enacted with little understanding of the impact • Complex dynamics often reduced to simple rules of thumb that are often inaccurate or misleading • Need to understand the role of: • Infrastructure • Labor force development • Smart specialization/diversification • Public-private partnerships • Opportunities • Enhancing trade Midwest-West Midlands (do we even know the volume?) • Location advantages as Chinese wage rates accelerate • Seizing the opportunity for 3-D printing; can these regions create new manufacturing jobs?

10. Understanding the Regional Economy • Policy makers rarely take the time to discover how their city or region works • How and in what direction it is likely to change • Formal evaluation of expected outcomes of alternative development strategies • Policy without formal analytical support is just speculation • The philosophy of Regeneration Economies: We cannot solve today’s economic development problems with the same thinking that created the problems

11. Regenerative Urban Economies • Analysis requires understanding of how the MACRO regional economy works, expected growth rates, changes in structure etc. • Evaluation of the MICRO (firm-level) economy especially in the context of key VALUE CHAINS • Development of a strategic DEVELOPMENT STRATEGY • Cycle back to evaluation of options at the MACRO level (impacts on production, income, employment, growth rates, population, migration….)

12. Initiating Our Understanding of the Regional Economy • How are the activities linked together? • Directly and indirectly • How has this structure of interdependence changed over time • What drives the regional economy? • Dependence on local, domestic and international markets • Where are the major trading partners? • What is the balance of trade? • How diversified is the export portfolio – both sectorally and spatially? • How has this changed over time? • Role of technology, demand and innovation in generating changes in production levels

13. Initiating Our Understanding of the Regional Economy (2) • How does the trade in people (migration) compare to the trade in goods? • Is the regional economy dominated by net in- or out-migration? • What is the age and occupational capital composition of migration? • How is the age profile changing – what is the role of ageing (20% US population will be >65 by 2030)? • How is the ethnic composition changing • How is the dependency ration changing (number of non labor force participants “supported” by each member of the labor force)?

14. Initiating Our Understanding of the Metropolitan Economy (3) • Short- and Long-run Forecasts • What are the expected growth rates of aggregate indicators like GRP, population, income and employment? • How will different national and international scenarios affect the region’s economy? • What are the expected changes in sector, income and employment compositions over the next 10, 20 and 30 years? • How will the occupational capital of the region change? • Supply-demand dynamics of the labor market • Role of skill migration in enhancing/detracting from the labor market’s competitiveness • Who will do the training/retraining?

15. What we Propose to Accomplish Development of a regional macroeconomic model of the Birmingham region to complement one for the Chicago region Next set of slides illustrate type of analysis that has been accomplished with a suite of models for the Chicago metropolitan region

16. Growth of Macro Variables: Chicago & US 2000-2040

17. Impact of Public-Sector Transportation Infrastructure Spending [$1 billion per year from 2010 through 2040]

18. Impacts Generated from Education Expansion [$1 billion per year from 2010 through 2040]

19. Impacts Generated from Education Premium [$749,050 per new graduate spread over 40 years; 100 additional graduates/year through 2019; 1,000/year additional through 2040. Tables provides estimates of the cumulative expenditures per year ]

20. Identification of prominent clusters • Set of interdependent sectors (groups of firms) that: • Trade more with each other more than their interactions with the rest of the region’s economy • Employ similar mix of skills in the labor they hire • Are geographically co-located • Exert an above average influence on the growth and development of the economy in which they are located through enhanced ripple or multiplier effects

21. Clusters in Chicago

22. Clusters in Chicago

23. Identification of the most important value chains

24. Supply Chains NOW: Dispersed-------Concentrated--------Dispersed 3-D: Concentrated….Concentrated……….. Dispersed.

25. Critical missing links in the production systems and their potential economic impacts Impacts of production expansion (export demand)and Import substitution

26. Critical missing links in the production systems and their potential economic impacts Impacts of production expansion (export demand)and Import substitution

27. Population Cohort Forecasts 2000 2040

28. Ethnic Composition 2000-2040

29. Demographic changes and their impacts Population >65 in US and Chicago 1900-2030

30. Demographic changes and their impacts Consumption Growth by Households of Different Ages

32. Role of Institutions of Higher Education Recent initiative from U of Illinois – collaboration between National Center for Supercomputing Applications and private companies to form an Illinois Manufacturing Lab in the central area of Chicago. The lab will be a place where manufacturers of any size “come to learn and use the world's most sophisticated tools, software and capabilities. Companies can work alongside the university's technical and business talent to experiment with new equipment, utilize digital tools, and learn how to accelerate product innovation.” The Illinois Manufacturing Lab will be seeded with $5 million from the state and $5 million raised from private firms. But they hope to have anywhere from three dozen to 50 full-time staffers, plus visiting faculty fellows and an annual $10 million operating budget within three years

33. Role of Institutions of Higher Education • The Universities of Illinois and Birmingham train: • Managers • Strategic decision-makers • Advertising experts • Innovators of new products and techniques • But they do not train people who produce the products • Why not a new international degree, jointly launched by Universities of Birmingham and Illinois, in manufacturing?