Economic Development Opportunities For U.S. Mega-Regions

May 2007

By Katie Bullard, Project Manager

AngelouEconomics

The world economy historically was an aggregation of national economies that drove economic growth from within their individual domains. Today, the world economy is driven by the actions of transnational corporations. Companies invest in dozens of countries and abandon their home base if necessary to compete globally. Communities are no longer competing domestically for investment, but internationally. In fact, half of the world’s population, living in China, India, Eastern Europe, and Russia, has been thrust into both the free enterprise system and the global economy in a span of only 15 years. These countries have always had excellent educational systems and skilled workers, but they were isolated from the rest of the world. Now, through open markets and technological advancements, the 3 billion citizens of these countries are competing with America for large-scale economic development and individual employment. In many cases, global competitors have created more extensive and focused strategies for growth and development than U.S. cities and states.

This means that, within our national economic development framework, each community engaged in recruiting and retaining high-impact companies must learn how to compete on the global stage. For years, economic development organizations, consultants, and investors have advocated a "regional approach" to economic development as the ideal approach to compete effectively on a global scale. In most cases, that "regional approach" simply meant cooperation and collaboration between central cities and their suburban counterparts.

More recently, however, the definition of regionalism has been expanded into a discussion of "mega-regions" or "megapolitans." Over the past few years, this concept has been actively promoted as the new framework for the discussion of regional economies. The Regional Plan Association, through the America2050 initiative, has defined mega-regions as "large networks of metropolitan regions that are linked by environmental systems and geography, infrastructure systems, economic linkages, settlement patterns, and shared culture and history." The U.S.'s primary mega-regions are highlighted with blue boundary lines on the map below.

U.S. mega-regions will account for 50% of the nation's population growth and 66% of its economic growth over the next 45 years. Given those projections, it's clear that considerable investment will pour into these regions. This article describes the major U.S. mega-regions, evaluates their relative position of strength for sustaining economic growth, and outlines emerging areas of collaborative opportunities within the mega-region framework.

OVERVIEW OF MEGA-REGIONS

CASCADIA: The Cascadia mega-region stretches across the far northwestern corner of the country and includes the major metropolitan areas of Portland and Seattle. Dominant industry clusters in Cascadia include Software and IT, Higher Education and Research, Communication Service, and Computer Equipment.

FLORIDA: The state of Florida is a mega-region to itself with primary hubs in Jacksonville, Miami, Orlando, and Tampa. Dominant clusters in Florida include Hotels and Entertainment, Financial Services, Eat/Drink, Retail, Professional Services, and Logistics and Distribution.

GREAT LAKES: The Great Lakes mega-region is one of the largest; its primary activity center includes the major metropolitan areas of Chicago, Detroit, Cleveland, and Pittsburgh. Primary clusters in the Great Lakes include Industrial Machinery and Supplies, Chemicals and Plastics, Wholesale, and Transportation Equipment.

NORTHEAST: The Northeast mega-region is the oldest, most populous, and most established mega-region. It includes the major metropolitan areas of Boston, New York City, Philadelphia, and Washington, DC. Major clusters in the Northeast include Transportation, Mass Media, Financial Services, Software and IT, and Biotechnology.

NORTHERN CALIFORNIA: The Northern California mega-region covers San Jose, San Francisco, Oakland, and Sacramento. Primary clusters in Northern California include Software and IT, Communication Equipment and Services, Biotechnology, Electronics, and Semiconductors.

PIEDMONT ATLANTIC: The Piedmont Atlantic mega-region is the most rapidly growing, and includes the major metropolitan areas of Raleigh, Charlotte, and Atlanta. Major clusters in the area include Communication Services, Software and IT, Utilities, and Construction.

SOUTHERN CALIFORNIA: Southern California encompasses the greater Los Angeles and San Diego metropolitan areas. Dominant clusters in Southern California include Aerospace and Defense, Communication Equipment, Electronics, and Mass Media.

TEXAS TRIANGLE: The major cities in Texas form a mega-region triangle that stretches from Dallas to Houston to San Antonio, and includes the capital city of Austin. Dominant clusters in the Texas Triangle include Energy and Natural Resources, Construction, Semiconductors, and Software and IT.

POSITIONING ANALYSIS

In order to assess the relative economic strength of each mega-region at a macro level, several key variables were analyzed:

• The similarity in the cluster base of the major metropolitan areas in each mega-region in order to determine the economic diversity of the region

• Economic and demographic indicators of economic development success - including employment growth, population growth, college-educated population growth, and growth in the 25 to 44 demographic.

Economic Diversity

In order to determine the level of depth and diversity in the job market, I examined the industry cluster composition in each major metropolitan area.

Clusters are highly integrated groups of businesses with strong vertical and horizontal linkages. To assess the strength of a cluster in a regional economy, AngelouEconomics has calculated location quotients (LQs) for each cluster. These LQs are calculated by comparing the cluster’s share of total local employment to the cluster's national share. Cluster location factors greater than 1 indicate a stronger cluster agglomeration, while those less than .5 indicate extremely weak clusters.

After analyzing the LQs in the metropolitan areas of each mega-region, I was able to rank the mega-regions in order of industry composition similarity. This ranking is based on two variables: 1) the standard deviation of industry cluster LQs between the metropolitan areas in each mega-region, and 2) the total number of industry clusters that are considered "strong" (LQ>1) in all of the major metropolitan areas in any given mega-region.

The analysis reveals that, based on standard deviations, the Florida mega-region has the most similar industry composition from top to bottom, while the Cascadia mega-region is most similar at the top, with the largest number of clusters that can be considered "strong" in both of the major metropolitan areas.

On the other hand, the Northern California mega-region is the most dissimilar from top to bottom, while the Texas Triangle is most dissimilar at the top.

Those mega-regions who have less diversified industry bases are most likely to experience booms and busts as they find themselves heavily dependent on two or three primary industries. According to the Bureau of Labor Statistics (BLS), the fastest growing industry employment bases through 2014 include Educational Services, Health Care, and Professional and Business Services. Employment in three industries is projected to decline nationally: Mining and Natural Resources, Manufacturing, and Utilities.

As has been the trend for many years now, the declining manufacturing base of the Great Lakes mega-region puts it at most risk, while the Education and IT bases in the Cascadia mega-region position it for excellent growth in the near future. The Energy and Natural Resources base in Texas is worrisome, although there exists opportunity to capitalize on the advances in clean energy technologies to diversify the traditional industry base.

Economic and Demographic Variables

Historically, clusters gathered in specific mega-regions of the U.S. due to natural advantages (e.g., natural resources and climate), cost factors (e.g., distance to market, labor costs), and existing transportation infrastructure. Today, however, companies are increasingly drawn to mega-regions that can supply the unique workforce that they need. In the face of an impending national labor shortage, those mega-regions in a position of strength have robust population growth, specifically between the primary workforce (25 to 44 years old) and the college-degreed population.

• The Piedmont Atlantic and Texas Triangle mega-regions are expected to experience the most rapid population growth over the next 5 years, while the Great Lakes, Northeast, and Northern California are projected to experience the slowest growth.

• All mega-regions are expected to see an increase in the percentage of college-degreed residents, with Northern California and the Northeast having the highest percentage of residents with at least a bachelor degree.

• The percentage of college-degreed residents is expected to experience the slowest growth in the Texas Triangle and Piedmont Atlantic regions – likely a function of rapid immigration growth.

• As the nation ages, the percentage of 25 to 44 year old residents is expected to decline nationally, and that is also the case among the mega-regions. However, those mega-regions with the highest percentage of the 25 to 44 population will remain the Piedmont Atlantic, the Texas Triangle, Southern California, and Cascadia.

CONCLUSIONS

The opportunities to strengthen connections between individual entities within the mega-regions and enhance global competitiveness are limitless, and include efforts to coordinate transportation and infrastructure planning, land use planning, environmental concerns, and economic development initiatives. This brief, macro-level analysis of U.S.'s largest mega-regions doesn't cover all of these topics, but it does reveal several key opportunities for strengthening mega-region economic development initiatives in order to compete more effectively in the global economy.

• Economic development officials in the less diversified mega-regions, including Florida, the Great Lakes, Cascadia, and the Northeast, should develop individually strong metro-level economic diversification programs, while working closely together to enhance the robust synergies that exist between the major employment centers and fill in supply chain gaps.

• In the heavily diversified mega-regions, including the Texas Triangle, Northern California, and the Piedmont Atlantic, there is less competition among major cities for key industry recruitments. Therefore, cities can effectively work together to build comprehensive economic development recruitment programs that position each metro area as a premiere location of choice for distinct industries, while efficiently marketing the overall business advantages of the entire region.

• The Great Lakes and Florida mega-regions exhibit the most significant human capital challenges. Specific efforts in these mega-regions could focus on developing collaborative education compacts to encourage financial access to community colleges and four-year institutions for all qualified high school graduates, and region-wide financial assistance to college graduates to stay in the area after graduation.

• At a state-level, large economic development funds have proven successful for industry recruitment. These large funds may be leveraged at a mega-region level as well, particularly in those mega-regions with diversified industries and less economic competition among the major cities.

• Venture capital investing is already characterized by significant regional network agglomeration. If taken up to the mega-region level, well-developed venture capital networks could significantly accelerate economic development and technological innovation in mega-regions.

AngelouEconomics' economic development philosophy is centered on helping clients to develop globally competitive economies. In the face of intense international pressure from rapidly advancing countries, it is critical that U.S. cities and states enhance their role in a larger, mega-regional economic framework. If you would like assistance in developing a mega-regional economic development strategy, AngelouEconomics is available to help.