ASU's Morrison Institute has always labored under two Sisyphean tasks. First, its public-policy scholarship necessarily antagonized the state's ruling elites -- hence, it was forced to pull its punches to avoid losing funding, and, even then, the elites wouldn't accept its work. Second, it was treated in the media as the "liberal" equivalent of the (Bob) Goldwater Institute. This, even though the "Goldwater" Institute is an arm of the national right-wing advocacy machine, not a genuine think tank that engages in open-minded, peer-reviewed research. With the loss a few years ago of my sometime collaborator Mary Jo Waits, author of Morrison's most prescient and important works (Five Shoes, Meds and Eds), the institute became even more marginalized. Now Morrison is trying once again to become part of the conversation under the leadership of Sue Clark-Johnson, retired Arizona Republic publisher and close friend of ASU President Michael Crow.
Good luck. Unfortunately, the first effort, Forum 411, seems destined for the dustbin of forgotten, well-intended reports at an even faster speed than its predecessors. It is brief, as to be expected from an entity now headed by a former Gannett executive, and strives to be inoffensive. Think of a pep talk. Anthony Robbins on economic development. It states two broad themes: the obvious (Arizona needs to diversify its economy) and the untrue (which I will deal with momentarily). Worst of all, it leaves critical information entirely out. The loss of Waits' intellectual heft is obvious. So, too, is the continued bowing before the Real Estate Industrial Complex (the report's sponsor is the suburban mall developer, Westcor).
(Some disclosure: For years, Clark-Johnson rebuffed efforts by the powerful developers and house builders to fire me as a columnist for the Republic (until the economic collapse made the need to please advertisers paramount). Even though I pulled my own punches for self-preservation, her protection allowed me to tell the truth about Arizona and Phoenix's dire situation, including predicting the current depression there, as well as supporting a variety of good civic causes, such as light rail. At her behest, I accepted a Morrison fellowship in 2003-2004, although I declined any compensation and did not write about Morrison or its work in my column during that time.)
This first "411" is entitled, The Road to Recovery: Lessons from Arizona's First Economy. Its conceit is that Arizona today can learn from the state's rebound from the Great Depression. Clever, but bad history. As happens with much of the Information Center's "journalism," the state of Arizona is misleadingly conflated with metro Phoenix. In fact, the Depression was very hard on the copper-mining districts of the state. Its effects were much less severe in the capital city. The Great Depression did not damage Arizona in the same way as this Great Recession.
Unlike what metro Phoenix had become in the 2000s, the old agricultural-ranching economy was relatively sustainable; even mining in the state was more "real" than the housing bubble. In addition, the initial diversification beyond the "Five Cs" was not undertaken by Arizona -- where state officials were as reactionary then as now, although not insane -- but by forward-leaning leaders of Phoenix. Arizona was a large, diverse state that did not move in lockstep with Phoenix and had very different issues and challenges.
The report goes on to examine the state's "cluster" strategy in the 1990s without stating the essential truth: the attempt to build such a tech economy failed because of lack of focus and funding. Some semiconductor manufacturing and a few other legacies of the 1950s-1960s economic efforts remained; Tucson was somewhat successful with optics. But compared with the leaps made by rival cities in that decade, Arizona metros turned in abysmal performance. No major companies were created. No major high-wage industries cornered. Unlike in India, call centers did not prove to be gateways into higher-skill technology jobs and sectors. Hundreds of tech companies were lost and Motorola began its long retreat. I recall an anecdote from the early 2000s, when I was hell-raising in the paper three times a week. The Greater Phoenix Economic Council undertook a confidential study: Did the clusters work, and what was the truth about metro Phoenix's wages compared with its peers? At one meeting, as the results were discussed, a participant gasped aloud, "My God, Talton is right."
The reality is that the Phoenix leaders from the late 1940s through the 1960s achieved much: developing tech and aerospace sectors, while Phoenix continued to be a major agricultural player (something that allowed the region to export and have some food self-sufficiency, not to mention cooler nights). That was diversification. Indeed, until the 1980s, wages and incomes in Phoenix tracked or exceeded the nation and peer cities, before beginning to fall behind thereafter. Another local effort came after the 1990 S&L crash, when GPEC was formed under the dynamic leadership of Ioanna Morfessis. It succeeded for a time, but Phoenix lost its key corporate engines, especially Dial and Valley National Bank. Economic development efforts faded -- and things seemed "good." The economy was "growing." Yet this growth was in population and construction, rather than incomes, venture capital, initial public offerings, educational improvements and other measures of competitiveness and social good. The sometime successes, whether Intel's new fab or Amazon's distribution centers, were not enough to create a diverse economy and sustainable prosperity for a metro area of this size. Still, the Growth Machine made the elites wildly rich and any reform efforts provoked stout resistance.
When the economy crashed in 1929 (and much of the agriculture economy had been ailing through the 1920s), Arizona's Five Cs remained viable awaiting a broader revival. And, critically, the state had a very small population: 436,000 in 1930. When the economy crashed in 2007, metro Phoenix's tech sector was smaller as a proportion of the total economy than at any time since probably 1950. All the "Cs" were gone, except for (rapidly warming) climate. The entire state was dangerously dependent on the intertwined sectors of housing, real estate, home-improvement, low-wage service jobs. All were a Ponzi scheme, not only because of the national financial frauds but also because they were contingent on continued large, unsustainable rises in population. Now metro Phoenix has 4 million people, which brings huge "carrying costs" just to keep the economy afloat and handle the bare infrastructure needs and urban problems of such a huge metro.
So a look back to the Depression is largely unhelpful. So, too, are the anodyne suggestions that mark the report's conclusion. All fine. I love Science Foundation Arizona, too (Ironic that Ireland, its model, crashed in a Phoenix-style real-estate bubble). Too bad the Legislature stabbed it, and the universities, in the back. But the report is very 2003, when the hopes of Napolitano, TGen, etc. were still fresh. It avoids a hard look at where Phoenix and the state (still distinct entities) really stand today.
The realities now are far different:
1. Intense population growth, and the huge debt bubble, to support the old sprawl of the Real Estate Industrial Complex, may not come back.
2. State finances are a disaster, making funding for leap-frog initiatives difficult and even making it impossible to catch up on the infrastructure needs of the past, that were pushed forward to allow quick profits for the land barons. Phoenix and Tucson are the largest close metros in the nation with no passenger rail service, to take but one example. The state has been badly wounded by years of tax cutting, and worse, a tax structure totally incompatible with the needs of a populous, highly urbanized state.
3. Arizona is paralyzed by political extremists and bigots, a crazy show that conveniently perpetuates the status quo. On the national and world stage, it turns stomachs. Top scientists and engineers will not come to a place in significant numbers when a hostile Legislature is always cutting funding for research while the dominant political party fires up its "base" by attacking people who aren't white, straight and suburban. Arizona can't understand that in today's economy, government must do some things very well -- from education to infrastructure, etc. It's true from China to North Carolina. The nihilistic reactionaries of Arizona are one of its biggest impediments. Unfortunately, they're in charge. For years they have underfunded or not funded key investments for real economic growth, such as the universities. They have refused to employ the economic-development best practices used successfully by such communist regimes as Georgia, Alabama and the Carolinas.
4. The "good years" were squandered. This is especially true with the Phoenix Biomedical Campus, which by this time should have been built out with hospital(s), medical, nursing and pharma schools, more research operations and for-profit pharma and biomed manufacturing all on one site, with the critical mass the creates breakthroughs. Now there seems no will to move ahead, even as Arizona has been left even further behind by its rivals.
5. The competitive landscape is changing even more than before the crash. China will become more of an economic force than ever, yet Arizona is doing nothing to attract foreign direct investment or build trade. China and Europe are making leaps ahead of America in renewable energy, and Arizona is not on the radar even within the backward U.S. Neither Arizona nor Phoenix even have a strategy to recruit companies from the LA area.
6. Suburban sprawl and political Balkanization continue to kill Phoenix. They prevent even a coherent "brand" in the world economy -- what the hell is "the Valley?"; nothing they know about in Shanghai. Metro areas, not states, are the new competitive units of the world economy. It's city vs. city -- but not Chandler against Gilbert for sales taxes. Yet the little mandarins of the suburbs would rather fight to keep the magical name "Phoenix" from even being uttered.
7. Degradation of quality of life and the environment continue apace. Phoenix lacks the attractive city assets of its rivals -- even though those rivals have lookalike suburbs, too. This is a particular disadvantage when dealing with such a populous place; Phoenix is not Santa Fe, or even Fresno. Phoenix is too much one flavor. And there's no Plan B: to retrofit suburbia for the future; create high-quality density and walkable town centers with transit, etc. Hot weather and endless driving from the subdivision to a Westcor mall may attract retirees and a self-selecting cohort of Midwestern and inland California suburbanites. Those "assets" and Arizona intolerance won't attract the world's most talented workers. Combined with the state's backwardness and political extremism, they will continue to repel capital for anything but, maybe, real estate.
8. The underclass time bomb continues to tick. Millions are cut off from the economic mainstream and a ladder up, stuck in a horrible school system, segregated in linear slums. It's a tragic waste of human capital, a moral crime and a social explosion waiting to happen.
9. Arizona is less prepared than ever for the realities of the 21st century, including climate change and peak oil. It is among the most vulnerable states to the consequences. It is unwilling even to acknowledge its own water situation and take the aggressive land-use steps to address it.
None of this is in the Morrison report, which concludes: "We have matured as a state in economic terms and dynamics, and now is the time to put that maturity and knowledge to work..." Not really. The elites are just waiting for the Growth Machine to sputter to life -- Please, God, give me one more bubble... The reigning boosterism, delusion and denial prevent discussion, much less action, on the huge issues that will affect Phoenix and Arizona, whether they want it or not.
I can't wait for the "Goldwater" Institute and its sock puppet on the Information Center's editorial page to strike back at this socialist Morrison manifesto.
Excuse me: I should have said it in Kook: SOCIALIST MANIFESTO!!!
Thanks for reminding us why you're indispensible. Two years ago when the cusp of the current crisis was becoming evident, Bob Robb was giddily comparing our employment stats to Portland's. Stupid growth was better than smart growth! The Kotkins and Kudlows really didn't care what the endgame was so long as somebody was making money in the process. Now, Phoenix looks like a dinosaur with heat prostration. Revival, we're told, is a just a tax cut away.
If the free market always knows best, then the fate of Phoenix is exactly where it should be.
I've never seen a real-estate crash like this one. By the time we've picked up the pieces and worked through the excess inventory - ten years hence or longer - it's likely global warming will be so obvious that real-estate agents will have to spin it as a lifestyle amenity. Water more than heat will be the key issue here and it's not likely that future shortages can be dismissed as a hoax by the rubes in talk-radio land.
We've been careening down this slope for over 20 years and there's nothing buffering us from a very hard landing. If it's not over, we're free to contemplate euthunasia. Frenetic growth covered up a multitude of sins that will now stand dangerously exposed. We're going to see real-estate trusts tearing down their own building stock to avoid paying property taxes. We'll see ghost malls and potholed freeways. We'll see Phoenix's cachet so tarnished that comedians will joke about us like they do Detroit today.
Posted by: soleri | September 21, 2009 at 08:00 AM
Mr. Talton wrote:
"China and Europe are making leaps ahead of America in renewable energy, and Arizona is not on the radar even within the backward U.S. Neither Arizona nor Phoenix even have a strategy to recruit companies from the LA area."
Quite right:
"The Sonoran Desert is among the most efficient spots on Earth for solar power plants and rooftop solar arrays...But most solar panels, mirrors, frames and other equipment are made elsewhere. In case after case, the state has fallen short of the competition. At least 10 companies have looked at Arizona in the past two years but decided to move their factories and about 4,500 workers to other Western states."
http://www.azcentral.com/arizonarepublic/news/articles/2009/03/08/20090308biz-solarincentives0308.html
There is some good news locally: APS developed a (relatively) inexpensive single-track tracking system that gets nearly the efficiency of double-track systems but at half the price. This technology would increase efficiency of solar panel collection by nearly 30 percent. But it's selling the technology to a New Mexico based solar company.
http://www.azcentral.com/arizonarepublic/business/articles/2009/09/20/20090920biz-insider0920Randazzo.html
The industry is big and growing bigger:
"With more than 50,000 new jobs, the renewable energy industry in Germany is now second only to its auto industry. One thing that has never existed in America — with our fragmented, stop-start solar subsidies — is certainty of price, connectivity and regulation on a national basis.
" 'We are seeing the industrialization of the solar business. In the last 12 months, it has brought us $1.3 billion in revenues. It is hard to build a billion-dollar business...About 95 percent of our solar business is outside the U.S.. Our biggest U.S. customer is a German-owned company in Oregon. We sell them pieces of equipment.' "
-- Mike Splinter, CEO of Applied Materials, one of the world's largest solar manufacturers, with 14 solar panel factories: five in Germany, four in China, one in Spain, one in India, one in Italy, one in Taiwan and one in Abu Dhabi...and none in America.
http://www.nytimes.com/2009/09/16/opinion/16friedman.html
Note that Germany is NOT a low-wage labor market for manufacturing. These are good paying jobs and the industry is growing. Maintenance of both manufacturing plants (solar fields) and installed panels at homes and businesses will also add numerous higher paying jobs.
"Even in the solar industry, many worry that Western companies may have fragile prospects when competing with Chinese companies that have cheap loans, electricity and labor, paying recent college graduates in engineering $7,000 a year.
"Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States...Beijing’s aim is to generate 20,000 megawatts of solar energy by 2020."
http://www.nytimes.com/2009/08/25/business/energy-environment/25solar.html?_r=2&hp
This commenter's remarks are at least worth considering as an alternative view to the prevailing wisdom:
"It's the same old story. Our last great economic hope is the renewable energy industry. Without tariffs our renewable energy industry will be out-competed by China. There never was a level economic playing field. That's the point behind having tariffs.
"When this country began, our industrial development was long retarded by cheap British and other European manufactured goods. We only became an industrialized country when Congress put tariffs on these goods in order to give American companies a chance to develop industry. In fact these tariffs were one of the causes of the American Civil War; but it resulted in development of U.S. manufacturing industry and propelled us to leading nation status."
http://www.oregonlive.com/business/index.ssf/2009/09/chinese_solar_startups_take_on_1.html
Is any successful player on the international economic scene practicing protectionism to build up its industry? Yup. Guess who?
"The Chinese government is requiring that 80 percent of the equipment for China’s first municipal power plant to use solar energy, to be built in Dunhuang in northwestern China next year, be made in China."
http://www.nytimes.com/2009/08/25/business/energy-environment/25solar.html
And this:
"China’s currency and trade policies, though highly effective, would be hard for the United States to emulate.
"For instance, government intervention in currency markets has prevented the renminbi from moving appreciably against the dollar in more than 14 months, and has pushed the renminbi down by 18 percent against the euro since March. (Note: This keeps Chinese exports attractive to foreign consumers.)
"Government agencies have been told not to buy imported goods with money from economic stimulus programs unless no domestic alternative is available. Washington has imposed a less restrictive rule, misleadingly known as “Buy American,” requiring that construction materials for the stimulus program be bought from any of the 39 countries that have agreed to free trade in government procurement — which China has not."
http://www.nytimes.com/2009/09/18/business/global/18yuan.html?_r=1&adxnnl=1&pagewanted=2&adxnnlx=1253549840-uRHTqf2bJq1uMeuTfEMeuQ
Posted by: Emil Pulsifer | September 21, 2009 at 11:11 AM
P.S. As one of the articles above puts it, in pooh-poohing the notion of a trade war, "China and the United States need one another: China needs the U.S. to buy its goods, and the U.S. needs China to buy its debt." Some symmetry!
Posted by: Emil Pulsifer | September 21, 2009 at 12:22 PM
Nice new blog layout, Jon.Just came back to Phoenix from the Bay Area, where I've been for 4 months talking to smart people. Ran into Andy Conlin Sunday at LGO (much less crowded these days. He told me how the Goldwater Institute sued the City of Phoenix over City North and the case is to be argued in the Az Supreme Court on 9/30. Could put an end to the City's ability to do anything with taxpayer money for economic development. So why don't they just return the money to us and let us take our chances without more policemen?
Posted by: twitter.com/hardaway | September 21, 2009 at 08:46 PM
Just heard this morning that 1 in 5 vacant houses in Phoenix are being bought by investors. Sounds like the bust will be back sooner than we thought!
On a side note, when is the Maricopa Board of Supervisors going to grow a pair? Stapley has been arrested again by Sheriff Joke after all the charges from his last arrest were dismissed. Interestingly, DS is repped by the Federal attorney dismissed by Bush, Charlton.
Posted by: eclecticdog | September 22, 2009 at 07:29 AM
1 in 5?
"The lure of once-in-a-lifetime deals on bank-owned homes is driving investor purchases, which experts say account for 50 to 70 percent of recent home-buying transactions. Still, it's the ability to generate revenue by renting the homes to tenants - in some cases, previous owners - that makes the properties such attractive investments."
http://www.azcentral.com/business/realestate/articles/2009/06/12/20090612biz-rentalhomes0612.html
Incidentally, close to 40 percent of all home sale transactions are foreclosures. Normal range is 3 to 5 percent.
http://www.azcentral.com/business/realestate/articles/2009/08/28/20090828biz-resales0829.html
And:
"The same phenomenon that has driven down home-sale prices appears to be occurring in the apartment market, they said, with cash buyers lowering prices as much as is necessary to attract paying customers."
http://www.azcentral.com/business/articles/2009/09/09/20090909biz-apartments0909.html
Posted by: Emil Pulsifer | September 22, 2009 at 08:02 PM
Outstanding article, Jon. I was one of many who enjoyed your work on the Republic and knew you were right, about everything. Such a refreshing and stark contrast to those Goldwater hacks. I like to call them the Don't Believe Your Lying Eyes Institute.
I had to chuckle at this: "I love Science Foundation Arizona, too (Ironic that Ireland, its model, crashed in a Phoenix-style real-estate bubble). Too bad the Legislature stabbed it, and the universities, in the back." Yeah, I also love the idea of the Science Foundation, but their director Dr. William Harris, no so much. He gave a speech to the Nucleus Club in Phoenix this past summer and I knew I wasn't going to like him when he started singing the praises of Thomas Friedman and globalization. He said he had the exact same idea for a book as Friedman's The World Is Flat. He got testy with me when I asked why corporate partners of the Science Foundation, such as Intel and APS, were constantly down at the Legislature demanding tax cuts while bemoaning the budget cuts that imperil the Foundation. Dr. Harris didn't like that question. He proceeded to lecture me about George Steinbrenner and Ireland. 'Tis a tragedy when scientists become corporate stooges.
Posted by: Donna Gratehouse | September 23, 2009 at 11:36 AM
"APS *developed* a (relatively) inexpensive single-track tracking system that gets nearly the efficiency of double-track systems but at half the price. [emphasis mine]"
The key term is "developed". They did not invent the technology, but took ownership of a promising technology that works best at larger scales and could be developed best only at a few select locations that include the APS STAR Center.
APS continues to make its 'investments' in distant, centralized generation. In such a system, transmission losses often nullify efficiency increases for photovoltaics. The 'investments' that Arizona makes in solar energy are paid for by "ratepayers" by ACC mandate.
The ACC is the very same body that allows repressive rate schedules to continue. The mechanism for these repressive rate schedules is detailed on the Rate Crimes Energy Blog: http://ratecrimes.blogspot.com
Posted by: twitter.com/RateCrimes | October 01, 2009 at 10:39 AM
"He [Dr. William Harris] said he had the exact same idea for a book as Friedman's The World Is Flat"
So, a slow writer with bad ideas is the Director of Science Foundation Arizona? This says a lot about Arizona. At least Friedman has been furiously backpeddling from his myopic vision of the future.
Posted by: twitter.com/RateCrimes | October 01, 2009 at 10:51 AM
"backpeddling" - pun intended.
Posted by: twitter.com/RateCrimes | October 01, 2009 at 10:53 AM