Those Who Cannot Remember the Past …

A current series of articles in the Pittsburgh “Post-Gazette” is highlighting issues around immigration to Pittsburgh in the new economy, and rightly so.  Immigration is one of this country’s seminal political issues and one that is central to the Pittsburgh region’s economic success.

But written between the lines of this and so many other pieces on Pittsburgh’s shortcomings is the subtext that, in fact, Pittsburgh’s situation is the result of some self-inflicted wounds and “the region should have known better”.  After all, look at how other regions have done it better, prima facie, their growth outstrips ours.  As usual in these pieces, there are quoted experts in the appropriate fields: everything from social sciences to economic development to corporate leadership and all of them have theories as to what Pittsburgh could have done better.

I have to question the ages and backgrounds of these people.  After reading the first two pieces in the “P-G” series I realized how old I am and how long ago was the time of Pittsburgh’s great economic upheaval – the complete death of the steel industry.  I suspect that many of the experts, especially those located in Pittsburgh, are too young to have lived through that era.  So despite the fact that I’m about to give a hint at my age, let me say I did and ….

Pittsburgh in 2014 is a modern miracle!  Detroit’s debacle in 2014 is nothing compared to the decimated economy that was Pittsburgh.  It was literally an economic collapse of “Great Depression” proportions.  I cannot exaggerate the shadow that was thrown over daily living; even the weather seemed grayer.  And yet, Pittsburgh survived.  And then it stabilized.  And now it is growing again.  The past is not prelude.  Great societies revive and renew and reinvent themselves.  Great people do as well.  As do great, truly great cities.  That’s happening in Pittsburgh now.  With acknowledgements to Santayana and exhortations from Gautama Buddha to enjoy the present moment. Peace out for now.

Finally, some sprouts from local seeds!

This week it was announced that HP Vertica, a software engineering division of Hewlett Packard, was opening a full fledged office in downtown Pittsburgh.  Previously the organization was working out of offices at Pitt.  Cited in the announcement as a reason for the standalone office by Colin Mahony, VP and general manager for HP Vertica, he notes: “We’ve found that you have to go where the talent is and we’ve had great, great partnerships with CMU and Pitt.”

That’s exactly the kind of talk we want to hear for organically growing Pittsburgh’s job market and overall future.  Enough of what I’ve heard from a couple local economists that Pittsburgh’s slowdown is related to the general slowdown in US economic growth.  Huh?  Be a leader, not a laggard.  Incite your own job growth.  It’s about time we hear of more organizations that credit Pittsburgh’s higher ed talent pool as a reason to locate here.  It’s nice when eds and meds create jobs within their enterprises.  But it’s better when jobs and wealth are created by the ecosystems eds and meds help spawn.  Good on this one!

continuing a thought ...

After too much delay, building on the previous post but moving onto the more esoteric consideration of promoting manufacturing job growth in the Pittsburgh region: government assisted jobs development and promotion.  Miller targets Pennsylvania’s high corporate tax rates as strangling job creation, especially in the competitive field of new facilities location.  And in that he makes a valid point.  But these days government assisted jobs creation largely involves government subsidies.  Texas has become the master at stealing away both facilities and headquarters offices with rich government subsidy programs.  Witness last week's announcement that Toyota North America will bring 4,000 jobs from California and Tennessee to Dallas - with the State of Texas contributing $40 million to that move.  That can be done because Texas runs a large surplus in its budgets.  Why more of a surplus than most other states and certainly more than Pennsylvania and other Northeast/Midwest states?  How about another 30,000ft view of the obvious: because the State of Texas provides less to social and education programs than most states.  Texas shifts the burden of financing these programs to other government entities such as local municipalities and school districts.  Texas residents pay no State income tax but very high real estate and sales taxes.  Corporate taxes in Texas are also lower than Pennsylvania’s.

And that’s where the government and societal philosophy comes in: do we tax at the job-holder or the job-creator level.  By shifting the burden of necessary social and educational needs to residents, especially owners of housing who tend to be older, states like Texas are taxing the users of social programs, dependent children [via their parents] and the elderly.  This frees up resources [tax money] for programs [corporate location subsidies] that benefits job creators in the form of businesses. In turn, these business entities provide jobs that attract young people in their 20s and 30s that, once established, then become essential to job creation and future growth via family formation and corporate expansion.  Subsidizing old retired people to comfortably afford their homes is not part of the Texas strategy.  Subsidizing entities like Apple and Samsung and Facebook, to name three recently subsidized firms in the Austin area, is a strategy and a successful one, for job creation at least.

So which way should Pittsburgh head?  I don’t believe growth for growth’s sake should be a goal.  A high growth rate provides bragging rights but not necessarily a high quality of life – in fact from my experience it’s quite opposite.  So it comes down to “philosophy” as well as simply working with what you’ve got.  Those beautiful green hills and valleys and rivers of western Pennsylvania need to inspire a new creativity and a new path of innovation and success.

Of Place and Time

In the Sunday April 6^th edition of the “Pittsburgh Post-Gazette”, Donald Miller penned an excellent piece pointing out the clouds on the horizon of Pittsburgh’s relative economic revival, pointing specifically to slowing job creation and continues population losses.  I was traveling in southern California when I read the piece from sunny and dry Orange County, California.  Having just flown in that morning to John Wayne Airport I had a 30,000ft perspective [sorry, pun intended] on Mr. Miller’s focus on manufacturing jobs as key to growth in western Pennsylvania employment numbers.

As our jet came over the San Gabriel Mountains and descended into the coastal plain that is Orange County [the “OC”] you can’t help but be struck by first, the willingness of California’s Transportation officials to throw up highways everywhere. And then second, the incredible number of one and two story flat roofed structures that cover the landscape for most of the flight path into the airport; literally miles and miles of warehouse and manufacturing facilities.  These are companies that provide everything from minimum wage jobs for unskilled, newly immigrated residents to well paying jobs in high tech related industries.

And these are precisely the types of jobs Mr. Miller is dreaming of for the Pittsburgh region.

Here’s a thought on Pittsburgh’s ouster from the modern manufacturing jobs contest: geography plays a large role in this.  Pittsburgh is certainly at the bottom of the list when it comes to adding any new manufacturing jobs so we can point to any one of a dozen [or 49 or 99, whatever size the list] other cities as alternative examples.  But to name the big job gainers in this most recent tepid national growth cycle, let’s note Houston, Dallas, Denver, Phoenix, and southern California as the shining stars.  They all share the gift and curse of having flat, easily developable land that can be quickly cleared and has little physical attractiveness that causes the locals to throw up preservation arguments.  Plus, as a part of that landscape, major highways can be built with equal ease.  Because of Pittsburgh’s geography, it will never be able to compete in that arena. 

Get used to it and get over it.  Modern manufacturing as implemented by the military industrial complex requires oodles of cheap, available land and government subsidized transportation, meaning, highway networks.  All of those resources are in scarce supply in Pennsylvania and the Pittsburgh region.

So what’s the answer?  One approach involves smaller companies that produce high value-added products.  Electronics and high tech instrument manufacturing would be two examples.  Something like All-Clad cookware, is another.  More of that please.  And here I’ll pull an example from another travel experience that speaks more to what Pittsburgh should emulate.  I’ve noted more than a couple times while on trains in Switzerland and Germany, the number of small towns and villages that have some sparkling clean industrial building integrated right into the town.  Often these facilities will have large multinational corporate names attached but just as often they are specialty manufacturers, maybe family owned, that provide the economic basis for a prosperous community.  I can see those tucked into the hills and valleys that form western PA’s landscape.

Donald Miller’s piece also notes the need for State involvement to promote manufacturing job gains.  His assertion, one that I agree with, touches on an existential debate over the role and impact of government as it reflects the public’s collective will.  I will save that discussion for a subsequent post.

Under Utilized Resources

New Pittsburgh Mayor Bill Peduto recently noted that the Hill District was a prime focus for development under his administration.  Excellent!  The Hill District and north Oakland as well as Homewood are very large neighborhoods that are more than under-utilized resources, they are diamonds in the rough.

The Hill especially has broad tracts of developable land and sits right in the center of the higher education centers of Oakland [Pitt, CMU, Carlow], The Bluff [Duquesne], and downtown [Point Park].  The spinoff opportunities from these schools alone are limitless and could provide meaningful, achievable jobs for neighborhood residents.  Combine that with the historical sense of community at the heart of the Hill District and there exists a real “place” in the metaphysical sense, all of which defines a true community.

Homewood is similarly well situated geographically if also with a few more issues to overcome than the Hill.  Crime seems notably more present in Homewood than the Hill of late.  But that could be a factor of a larger population density or a younger demographic.  Whatever the causes, the solution must come from a focus on the neighborhood and a committed determination to change that situation for the better.  Homewood backs up against the economically resurgent East Liberty and some of the wealthiest neighborhoods in the City.  There is real potential for development to occur that is inclusive of Homewood’s current residents.  Economic prosperity percolates up.  I hope Mayor Peduto’s team turns on the stove for this brew in both neighborhoods.

PIT - A Dose of Reality

This past week, Bradley Penrod was ousted as President and Chief Strategy Office of the Allegheny County Airport Authority which is, primarily, Greater Pittsburgh International Airport.  [Though let me add that from my years in corporate America and having grown up below the flight path to Allegheny County Airport, every major city needs at least one general purpose airport to accommodate the wealthy and powerful who don’t care to endure the current state of air travel like the rest of us do.  Thank goodness Allegheny County exists and seems to thrive in its arena.]  Much has been made about what Mr. Penrod did or didn’t do for PIT during his tenure.  And I note that no one in the Pittsburgh media has really been kind to him.  This is despite differing opinions reported from airline analysts outside of Pittsburgh.  Allow me to come to Mr. Penrod’s defense on this account as well.  My bottom line is that PIT is a fine airport.  It’s not Atlanta or Chicago and thank the good Lord above for that.  As a frequent flyer and a million-miler on one airline, I can tell you I go out of my way to avoid the so-called fortress hubs.

My support for Mr. Penrod comes here in the form of a series of questions that I cannot answer but I hope those at the Airport Authority are at least are studying.  But first here are a couple facts that stand out boldly when discussing PIT’s standing among other big, and not so big, city airports.  Pittsburgh is relatively small.  I love the fact that Pittsburghers believe they should measure themselves against New York, Chicago and San Francisco.  So shall it ever be and that kind of thinking has benefits longer term.  But the cold, hard fact is that a market area of about 2.5 million people cannot sustain the same kind of O&D [origin and destination traffic] that those cities and even Philly or Denver or Seattle can.

Airlines are very opportunistic from a business perspective.  If there is demand between any city pair, one of them will offer a route.  Air travel produces some of the best marketing data available.  Every airline knows exactly where every flier is headed.  There is no need for a market study; it’s all in the reservation system.  If PIT suddenly had 2,000 fliers a day traveling to Europe or Asia via connecting hub cities, there would be more than just Delta offering a seasonal flight to Paris.  Austin’s new non-stop service to London on British Airways is testament to that: a relatively small mid-continent US city gains a non-stop overseas.  Mr. Penrod can offer all kind of incentives short of paying the bills of an air carrier and none of that matters as much as O&D traffic between destinations.

And PIT, domestic US airports, and every US-based carrier are facing even stronger headwinds than is being reported by the popular media in the US: the growth of international mega-hubs.  Longer range jets and the super sized jumbos like the A380 favor the new mega hubs such as Dubai, Qatar and Seoul.  These places make Atlanta and Chicago look like …St. Louis and Cincinnati and Pittsburgh.  Even America’s largest airport, Atlanta, will find it hard to compete as these new hubs and their primary carriers are government financed.  Allegheny County does not have a rich sugar daddy oil chieftain to subsidize rates.

Now to my questions:

-       Why is it that PIT’s passenger traffic has continued to fall almost every month for the last two years when airline traffic in general is growing post-9/11?

-       Is this mostly attributable to USAirways continued pullback?  If so, is PIT reaching some sort of equilibrium?

-       Why do Pittsburghers complain about an airport that is not overly crowded, pleasant to negotiate, and with more than adequate traveler amenities and services?  Gosh golly when I land at ATL or LGA I have to physically steel myself for the assault on my senses, not to mention my legs as I have to dodge the great unwashed INfrequent flying public.

-       Has PIT tried for more cargo service?  OK, admittedly cargo service also follows demand and Pittsburgh itself is not a regional transportation hub like Atlanta, Charlotte or Dallas, where interstate highway convergence lends itself to multi-modal transport.  But, cargo carriers are always looking for a better deal and doesn’t the local Chamber of Commerce always tout Pittsburgh’s being within 500 miles of most of the planet’s population, or something close to that?  What gives?

-       I asked the above question because cargo can lead to airline service.  Witness EVA Air and Taipei.  EVA Air is mostly a cargo carrier for the Republic of China [Taiwan].  They fly jumbo jets only and started out with just cargo.  But they discovered that with only some modifications, every cargo plane could carry some passengers as well; and they do.  An EVA Air, or similar airline, could bring an overseas connection to Pittsburgh not totally dependent on passenger volume.

-       Finally, a metaphysical question: what is unique about the Pittsburgh economy that a now growing economy, serving almost 2.5 million people, has an airport that is continuing to lag passenger numbers in similarly, and smaller, regions?  Is it demographics?

To that last question, here’s an anecdote from the recent past.  When British Airways operated a direct flight from PIT to Heathrow, it was typically close to sold out.  I flew it once and in coach class, it was sold out and hard to get a reservation. But that’s the important detail: coach class was sold out, first class was not, and hardly ever was.  A friend of mine who served on a local government airport commission at the time relayed that BA specifically pulled that route because it was a money loser.  “But how could that be when you practically could not get a reservation?”, I asked.  Because the difference between making money on an overseas route and losing it depends on first class capacity, he replied.  In these days of corporate penny pinching, I fear even fewer first class seats can be sold out of our static corporate center in western Pa.

As I said, a dose of reality is in order and Bradley Penrod deserves a break for his efforts on behalf of the airport.  Good luck to his successor.

Things Are Looking Up

Things in Pittsburgh have been looking up for quite some time now.  But I note that a few somewhat lightly reported items from around the news sites indicate a nice growth trajectory in the Steel City.

Access roads work continues in the area of the possible Shell cracker plant.  While new heavy industrial facilities in the Pittsburgh area are viewed by many with uneasiness, the economic benefits of this facility are undeniably huge.  And in an age of general corporate and political acceptance of environmental regulations, a state-of-the-art cracker plant should have the best environmental safeguards available.  From a historical perspective, I believe it puts Pittsburgh back into the league of cities not immediately associated with heavy industry but where oil and gas still plays a major role: New York, Los Angeles, Houston, the Bay Area and Philadelphia.  Anything that moves Pittsburgh back to that playing field is good.

Pittsburgh’s food scene is booming.  In the last couple months, Pittsburgh’s food scene has garnered stellar mentions in “Food & Wine” magazine, the New York Times, USA Today, not to mention all the broadcast media coverage for Kevin Sousa’s Superior Motors successful Kickstarter campaign.  For better or for worse, food in America involves public relations, perceptions, media coverage, and a little glitz & glam.  So run with it, Pittsburgh; that’s the way the game is played.  Analogous to the tendency to “hate” Starbucks and “like” local coffee purveyors, if that’s what it takes to develop an appreciation of more sophisticated alternatives, then so be it.  Don’t hate the methods; love the results.  A recognized food “scene” has innumerable side economic benefits as well.

There’s a growing influx of “out of towners”.  Not so much the actual numbers but the quality and diversity of newcomers in areas of commerce and culture where Pittsburgh is attracting out of town names, both corporate and individual, is noticeably growing.  Dynamic places thrive on that: people and companies move in and some move out.  It keeps the ecosystem fresh.  But it’s been a number of decades since Pittsburgh has experienced that and boo yah it’s happening again.  One hurdle to overcome is to grow the number of non-US immigrants [I despise the term “foreigner”] but that aside, the new-arrivals lists is getting much better.  Real estate investors, retail stores, restaurants, hotels, law firms, service firms ancillary to oil and gas extraction, and of primal importance, oil and gas firms themselves, both regional offices and actual headquarters.  While Shell Oil undergoes a corporate realignment that may indefinitely delay spending billions on a cracker plant, the possibility of it putting an Eastern Region office in Pittsburgh is strong.  As is the probability that Chevron will have its regional HQ up and running in a couple years.  [How ironic it would be for the company that took Gulf Oil out of Pittsburgh to come back with net more jobs than it removed.]

All in all, the uptick is there for anyone to see who reads the business, entertainment or lifestyle section of your favorite daily, with more praise for Pittsburgh being a medium size city with TWO general circulation newspapers.  Now all that we need is stronger belief by Pittsburghers themselves that things are looking up and the out of towners will be more willing to invest sensing that local enthusiasm.