Workforce Preparedness Measures and Characteristics: Part 3

This final article completes the picture of Missouri's Metro Areas relative position in comparison with other metro areas, using Chicago as the benchmark measure.

Why look at metropolitan areas?
The metropolitan area is defined by the Census Bureau as a set of counties that exceeds a certain threshold of commuting to the closest central city. A metropolitan area is, for the most part, a single labor market, with a one- to two-hour commute from edge to edge. Specialized job skills needed by specific industries, like pharmaceuticals in northern New Jersey, or software in Seattle, are accessed easily within metropolitan areas, but are extremely difficult to trade between them. The New Economy is driven by knowledge and skill. Metropolitan areas are the scale at which these specialized skills live.

Over the last few years, metropolitan areas have increasingly been viewed as the fundamental building blocks of the global economy. As trade barriers have fallen under NAFTA and GATT, the nation-state has receded in importance as a "natural" unit of economic analysis.

Although important from a political perspective, the 50 states and the District of Columbia have never been a particularly logical scale at which to analyze economic phenomena. The boundaries between the District of Columbia, Maryland, and Virginia are completely arbitrary in economic terms, while the residents of the northern and southern halves of California, Illinois, and New Jersey think of themselves as living in different economies (indeed, in different cultures).

New Publicly Traded Companies
The number of companies' initial public stock offerings as a share of gross metropolitan product.

Why is this important? In the last two decades, financial markets have embraced entrepreneurial dynamism. The number of initial public offerings (first rounds of companies' stock sold when they make their debut in public markets) has risen by 50 percent between the 1960s and the 1990s. While the number of IPOs priced and filed fell from 1,095 in 1999 to 489 in 2000, the number is still quite high relative to earlier years. IPOs are important because they indicate the degree to which an economy is producing companies that have long-term and substantial growth potential.

Metro Area By Rank (out of 50)
Rank 16 17 29	Metro Area Chicago Kansas City St. Louis

The Digital Economy
In the old economy, virtually all economic transactions involved the transfer of physical goods and paper records or person-to-person transactions. In the emerging digital economy, a significant share of both business and government transactions will be conducted through digital electronic means. The Internet economy is currently worth $830 billion, and almost 50 percent of households are online. Moreover, despite some high-profile dot-com bankruptcies, both e-commerce and the Internet continue to grow.

Between October 2000 and February 2001, nearly 17 million Internet hosts were added worldwide. But when the digital economy really takes off (i.e., when Internet penetration is close to ubiquitous and key enabling systems like digital authentication, smart cards, and broadband telecommunications are in widespread use), the productivity and income gains
will be enormous. The digital economy is likely to do as much to foster metro economic growth
in the 21st century as the Industrial Revolutions did in the late 19th to mid 20th century.

Metro Area By Rank (out of 50)
Rank 10 13 21	Metro Area Kansas City Chicago St. Louis

Internet Backbone
Total capacity of all Internet backbone links to other metropolitan areas as share of employment.

Why is this important? Internet backbone is the physical network (usually relying on fiberoptic cable) that carries Internet traffic between different networks and is measured in megabits per second. It is true that, because data travel at the speed of light, any place connected to any of the backbone networks should be as accessible as any other place. In reality, however, congestion at network hubs and junctions makes places with high levels of capacity better positioned to be home to companies that distribute large amounts of data via the Internet.

If the "pipes" are not big enough relative to the amount of data going through them, data transmission speeds will slow. This is not so much an issue for individuals, where their modem
speed and the "last mile" of connections usually cause the bottleneck. However, it can be an
issue for companies, especially companies that are hosting and transiting large amounts of data. As a result, having a high capacity of Internet backbone in a metropolitan area relative to
demand is a competitive advantage.

Metro Area By Rank (out of 50)
Rank 2 11 17	Metro Area Kansas City St. Louis Chicago

High-Tech Jobs
Jobs in electronics and high-tech electronics manufacturing, software and computer-related services, telecommunications, data processing and information services, biomedical and electro medical services as a share of total employment.

Why is this important? While high-tech industries make up less than 8 percent of the overall economy's output, they are key drivers of the New Economy. Just as capital- and machinery-intensive industries (autos, chemicals, and steel) drove growth in the 1950s and '60s, high-tech firms are the growth engines of the New Economy. And high-tech is concentrated in the nation's metro areas: While the largest 114 metro areas account for 67 percent of all jobs, they account for 81 percent of high-tech employment.

Metro Area By Rank (out of 50)
Rank 14 17 27	Metro Area Chicago Kansas City St. Louis

Degrees Granted in Science and Engineering
A weighted measure of the degrees granted in scientific and technical fields as a share of the workforce.

Why is this important? In the New Economy, the key engines of growth—a large and high-caliber scientific and engineering workforce—fuels technology and research-based companies and industries. Moreover, there is a critical shortage of scientists, engineers, and computer programmers, as demand surges, while supply graduating from U.S. universities stagnates, or even in some cases declines. So growing a high-quality, scientific workforce is critical to boosting innovation and productivity.

Metro Area By Rank (out of 50)
Rank 15 22 45	Metro Area St. Louis Chicago Kansas City

Academic Research & Development Funding
A combined measure of industry investment in R&D at academic institutions and total academic R&D.

Why is this important? Research and development, which yields new product innovations and adds to the knowledge base of industry and the marketplace as a whole, is a key driver of economic growth. Data on R&D conducted by businesses in metros are not available, but data on academic R&D are. Metropolitan areas that have academic institutions performing large amounts of R&D, particularly R&D that is funded by industry, are more able to attract and grow technology companies. While it has become almost a cliché to talk about the importance of MIT and Stanford to the economies of Boston and Silicon Valley, it's true that these research universities played and continue to play critical roles in propelling the regional economies.

Metro Area By Rank (out of 50)
Rank 6 29 46	Metro Area St. Louis Chicago Kansas City

Venture Capital
Venture capital invested as a share of gross metropolitan product.

Why is this important? In relative terms, venture capital (funds invested in new and unproven businesses) amounts to a small share of the overall capital markets, but its value goes beyond a simple dollar figure. Venture capital spurs growth at the critical early stages of growing companies' development. Moreover, venture capitalists don't just throw their money at start-up companies, hoping to get lucky and pick a winner. They become involved as board members and management advisers, suggesting strategic partnerships and helping to refine business plans.

Venture-based companies also are a key source of job growth; employment in venture-backed companies increased 34 percent annually between 1991 and 1995, while employment in Fortune 500 companies declined 3.6 percent. In the nation as a whole, venture capital has increased from an average of $6 billion in the early 1980s to $30 billion in 1999 (in constant 1992 dollars), and from 0.10 percent of GDP to 0.37 percent. In 1999, it was disbursed to some 4,000 companies, eight times as many as in 1980.

Metro Area By Rank (out of 50)
Rank 16 21 41	Metro Area St. Louis Chicago Kansas City

TABLE 1: Beliefs About Economic Development in the Old and New Economies

In the Old Economy, people believed that:	In the New Economy, people believe that:
Being a cheap place to do business was the key.	Being a place rich in ideas and talent is the key.
Attracting companies was the key.	Attracting educated people is a key.
A high-quality physical environment was a luxury and stood in the way of attracting cost-conscious businesses.	Physical and cultural amenities are key in attracting knowledge workers.
Regions won because they held a fixed competitive advantage in some resource or skill	Regions prosper if organizations and individuals have the ability to learn and adapt.
Economic development was government-led	Only bold partnerships among business, government, and nonprofit sector can bring about change.

Conclusion
The New Economy is here to stay—there's no going back. It brings enormous potential to boost the well-being of the residents of metropolitan areas, but it also introduces challenges. If metropolitan areas do not invest in a knowledge infrastructure—world-class education, training, and technology—companies will not have the skilled workers and cutting-edge tools needed to create higher-paying jobs. If they do not solve pressing quality-of-life issues, they will not be attractive to knowledge workers. And if Industrial Age local governments do not transform themselves into Information Age governments, they will impede, rather than advance, growth.

Simply put, metropolitan areas that meet the challenges of the New Economy—focusing on innovation, learning, and constant adaptation—will be the ones that succeed and see the incomes of their residents grow the most.

Source:
Edited excerpts from The Metropolitan New Economy Index, by Robert D. Atkinson and Paul D. Gottlieb, April 2001.

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Authored by: Jim Shonkwiler, Business and Industry Specialist, University of Missouri Extension
Source: Creating Quality Newsletter, Volume 10, Number 12, December 2001

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