Report2

Schumpeter

A rust-belt revival

New businesses are breathing life into some of America’s old industrial cities

IN 1984 Ronald Reagan ran a re-election ad on the theme of “It’s Morning Again in America”. Today’s presidential hopefuls ought to run a follow-up called “It’s Almost Midnight”. Donald Trump laments the loss of America’s greatness. Bernie Sanders says the country is being wrecked by greedy businesspeople. America’s leading intellectuals are equally gloomy. Charles Murray, a conservative, sa ys that America is “coming apart”; and George Packer, a liberal, agrees that it is “unwinding”.

Mercifully, not everyone is a doom-monger. In his annual letter to shareholders of Berkshire Hathaway, on February 26th, Warren Buffett noted that “for 240 years it’s been a terrible mistake to bet against America, and now is no time to start.” The March issue of the Atlantic magazine has a cover story by James Fallows on “How America is putting itself back together”. The author undertook a three-year journey across the country in a single-engine plane and saw signs of reinvention and renewal wherever he went—and not just in trendy tech hubs. A new book by Antoine van Agtmael, who coined the phrase “emerging markets”, and Fred Bakker, a Dutch journalist, called “The Smartest Places on Earth”, argues that the rust belts of the rich world, especially in America, are becoming hotspots of innovation.

Boosterism is as American as apple pie. But this time the boosters can point to some hard data. The Kauffman Index of Startup Activity, which measures business creation, had its biggest increase in 2015 for two decades. Bruce Katz of the Brookings Institution, a think-tank, reckons that America’s 50 most research- and technology-intensive industries have added nearly 1m jobs since 2010. These industries are disproportionately based in cities and, since they pay high wages, have a galvanising effect on local economies. Three powerful forces are breathing life into bits of America that had looked as if they were permanently left behind.

First, old industrial skills are acquiring new relevance thanks to such things as advances in materials science. As Messrs Van Agtmael and Bakker note, Akron, in Ohio, has capitalised on its heritage as home to America’s four biggest tyremakers by turning itself into America’s capital city of polymers. The University of Akron’s Polymer Training Centre houses 120 academics and 700 graduate students. Companies such as Akron Polymer Systems and Akron Surface Technologies are inventing new ways to commercialise synthetic materials. North Carolina has done the same for textiles. Its state university is home to the Nonwovens Institute, which does research on textiles that can resist heat and chemicals, including ones used in weapons.

Second, old industrial towns are realising that they have a vital asset: cheap property. Disused mills and warehouses, with their high ceilings and exposed bricks and beams, can make attractive homes and workspaces for knowledge workers. In Watervliet, New York, firms such as Cleveland Polymer Technologies occupy space in an old US Army arsenal. In Manchester, New Hampshire, the old and once-crumbling riverside mill district now buzzes with knowledge businesses and fancy restaurants.

The hunt for Lebensraum is driving young entrepreneurs to explore the neglected peripheries of big cities, such as Boston’s South Side (“Southie”), Seattle’s South Lake Union Area and San Francisco’s twin city of Oakland. Some entrepreneurs are cutting the cord completely and swapping broom-cupboard-sized premises by the Bay for mansions in flyover territory. Mr Fallows also found older industries reviving in out-of-the-way places, such as in north-eastern Mississippi, where a steel mini-mill was expanding and a $300m new tyre factory was opening.

The third trend combines elements of the first two: the rise of manufacturing entrepreneurs. Startups are beginning to transform manufacturing just as they transformed service industries like taxi-hailing and short-term room lets. New techniques such as 3D printing, combined with a rapid decline in the cost of computing power, are making it easier for small firms to compete with big ones. Crowdfunding sources such as Kickstarter are making it easier for them to raise capital. And big companies such as GE are trying to crowdsource innovation by providing small manufacturing firms with space and seed-money. Exponents of this “hardware renaissance” frequently locate themselves in old industrial towns such as Pittsburgh and Detroit, in part because there is lots of cheap space available and in part because they can draw on established manufacturing skills.

Formidable problems, formidable resources

There are plenty of reasons to be sceptical about rust-belt revivalism. The overall number of jobs in manufacturing has been declining for decades, and is set to continue falling as automation keeps advancing. Brain-intensive manufacturing will not provide many jobs for high-school dropouts. Such rebirths have been heralded in the past, only to come to nothing. The rate of business creation is still 50% lower than it was in the 1980s.

Still, America’s old industrial cities have formidable resources as well as formidable problems. Akron and North Carolina point to one of the country’s strengths: it has first-rate universities almost everywhere. GE built a factory for jet-engine parts in out-of-the-way Batesville, Mississippi, largely because Mississippi State University is a centre of expertise in the new