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China's Pittsburgh Moment

Pittsburgh peaked as an industrial powerhouse in 1910, but now it's part of the same job creation conversation as the cities comprising the Texas Triangle. As it shifts to a consumption-based economy, China looks poised to enjoy a similar turnaround.
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Downtown Pittsburgh from the North Shore. (PHOTO: THEEDITOR93/WIKIMEDIA COMMONS)

Downtown Pittsburgh from the North Shore. (PHOTO: THEEDITOR93/WIKIMEDIA COMMONS)

Pittsburgh is my muse. Like the city's topography, the region's history is full of twists and turns. On top of the hills or down in the hollows, surprises await. The place defies stereotype. Getting the attention of a business audience in San Antonio:

If manufacturing led to an innovation economy, is the next epoch the talent economy? Russell says it has begun and there are five cities that have the lead – four cities in Texas and Pittsburgh.

”Over the last five years, Pittsburgh has grown more jobs than Dallas – and that’s in absolute numbers,” said Russell. Why? The talent economy. What is it that would make a Rustbelt city like Pittsburgh produce world class talent and experience the same return migration San Antonio is experiencing?

Everyone knows about the Texas boom. Few understand the Pittsburgh turnaround. How did Pittsburgh end up in the same job creation conversation as the cities comprising the Texas Triangle?

I've learned a lot about Pittsburgh from regional economist Chris Briem. Just when I think I've got a handle on the Pittsburgh story, Briem will drop another bomb at his blog, Null Space. A century of decline:

 Population decline is not a debatable story since 1960 of course. Most will say 1950 was the peak. It is actually worse than that. Official stats will peg 1940 as the peak in the city's population, but you need to parse even more. It turns out that what little population gain the city had in the 1930s was the result of annexations that expanded the size of the city. You can make a case the city of Pittsburgh has been on a population glide since 1930. Folks long before me figured that out, but take that into account and the population within the city was declining in the 1930s as well. Much the same story for the county.  For both city and county the double whammy of regional population change compounded with suburbanization... another myth out there is that suburbanization began after World War II. For Pittsburgh and many other regions, it really was a phenomenon that was well underway by the 1920s.

Emphasis added. Sprawl, more than anything else, has decimated Rust Belt cities such as Pittsburgh. The flight from the urban core is 100 years old or more. Domestic inmigration and immigration obscure that reality to this day. But not for Pittsburgh, which peaked as an industrial powerhouse in 1910:

The 40-year period from 1870 until 1910 marked Pittsburgh’s Golden Age. Favorable geography, unique natural resources and a super-abundance of entrepreneurial talent lifted Pittsburgh to a position of national and international prominence never seen before or since. Pittsburgh’s growth is a story of heavy industry, specifically steel. Population statistics speak to Pittsburgh’s dynamism during this period. The city’s population grew sixfold in those 40 years, from 86,076 to 533,905. Allegheny County nearly quadrupled, to 1,018,463 residents. The local population growth rate doubled that of the nation. In 1900 the value of manufactured products in Pittsburgh was more than Cleveland and Detroit combined. ...

... Pittsburgh’s Golden Age had developed an industrial economy that was the envy of the world. The major enterprises launched then drove the Pittsburgh economy to new heights for the next 50 years. So strong were these Pittsburgh corporations that they carried nearly the entire weight of the local economy. The entrepreneurial era became the managerial era, and Pittsburgh was a quintessential “company town.” For both white- and blue-collar job seekers, Pittsburgh had a host of good jobs, and with the advent of Pittsburgh unionism in the late 1930s, Pittsburgh’s blue-collar jobs became even more desirable.

Unfortunately, there was a downside to Pittsburgh’s over-specialization in steel and heavy industry. Because the jobs were so attractive, they drew potential entrepreneurs away from smaller businesses.

Again, population tells the story. In 1930, the population of Pittsburgh peaked at 699,817. By 2000, it was 343,600—roughly half. Some of this was migration to the county. But here the story is equally bleak. In 1938, Allegheny County had a population of 1,374,410 and in 2000, 1,277,700. Between 1910 and 2000, the U.S. population increased threefold, while Allegheny County lost 9 percent of its population. In 2000, Pittsburgh had the second oldest demographic profile of any U.S. metropolitan county, behind Dade County, FL. Despite a static population, by the mid-20th century, good jobs in Pittsburgh’s heavy industry manufacturing sector remained plentiful. Economic development was not a high priority. What was a high priority was Pittsburgh’s environment. When Pittsburgh exited World War II in 1945, the Point at the confluence of the three rivers was a tangle of railroads and warehouses. Through a combination of the steel mills and the universal use of soft coal for home heating, the sky was often black at 9 a.m. (If you think Beijing is bad today, you should have seen Pittsburgh in 1945.) Despite a vital economy, Pittsburgh was dying at its core and in danger of losing the head offices of the companies that made it great.

Emphasis added. The soot of success in 1945 covered decades of decline. The city was in the midst of a demographic crisis. Leaders in the public and private sector realized this. You might say the Pittsburgh turnaround started when its reputation was still that of the Golden Age of 1870-1910. China's turn:

Yes, to a certain extent, China’s demographic hangover and the country’s transition to a consumption-based economy are actually good news. Overreliance on investment and exports is not exactly sustainable. But the process of transition will have winners and losers. Rebalancing means households living on their salaries get more of the economic pie. Entrepreneurs, “red capitalists,” multinationals, and tax collectors, commensurately, will likely be left with less.

Meanwhile, governing and encouraging economic development will become considerably more challenging. Economic management is much easier with an enormous demographic gust blowing at a government’s back, propelling its economy forward even if policies are less than optimal. As the wind dies, individual policies and economic decisions are starting to matter much more. Now, China will need to be a whole lot smarter and more creative in designing policy incentives.

When the demographic wind stopped blowing in Pittsburgh, individual policies and economic decisions got a lot smarter out of necessity. China is Pittsburgh in 1945 with a strange parochial folklore about labor and how to best manage talent. Pittsburgh struggled to appreciate the value of women in the workforce. China has similar anachronistic attitudes. A demographic gust compensates for such self-destructive thinking. The migration boomtowns of the Sun Belt are beginning to come to grips with this as bad policies rear their ugly heads and legacy costs mount.

Meanwhile, Pittsburgh continues to surprise:

An update using data from the 2012 American Community Survey (ACS) released today shows the ongoing trends in the demographics of the City of Pittsburgh. With the 2012 data released by the ACS, the proportion of the population age 65 and over has dropped below comparable national data.

Translation? Briem tweeted: "Maybe I need to issue a press release: City of Pittsburgh now 'younger' than the United States."

To put a bird on it: "I don't even know how far back you have to go to find the last time that was true."