3 July 2017
In announcing his recent decision that America would withdraw from the Paris Climate Accord, President Trump rationalised this choice indicating he represented the citizens of Pittsburgh, not those of Paris. His remarks, however, suggest the President perceives Pittsburgh as a heavily polluting city in industrial decline, requiring the government’s protection from the pressures of global competition.
While this perception may have been relevant when 19th century biographer James Parton referred to Pittsburgh as “Hell with the lid off” (of course, he was a Philadelphia resident), it is thoroughly outmoded today. Rather, Pittsburgh is a success story: an example of a city transitioning from economic decline to post-industrial economic prosperity. Currently, American and European electorates are questioning both the benefits of globalisation, and its contribution to the global rise in income inequality. At such a time, Pittsburgh’s ongoing, successful transition offers many valuable lessons. Rather than relying on politically expedient solutions (e.g. protectionism), policymakers world-wide (including President Trump) would benefit from visiting Pittsburgh.
Economic Collapse
In order to fully comprehend Pittsburgh’s achievement, one must ponder the starting point. To be sure, everyone is aware that Pittsburgh’s troubles began as the American steel industry declined. But, this was no simple slump, the collapse of the steel industry posed an existential threat to the city (and region). At its peak, Pittsburgh-based US Steel was the nation’s largest company, producing nearly 50% of American steel output (and often up to 30% of global production). The city/region’s economy was undiversified, and heavily dependent upon the fate of this single sector. It is estimated that since 1970 the American steel industry has shed 400,000 jobs, nearly half of them were in greater Pittsburgh. In 1970, Pittsburgh’s manufacturing sector employed nearly 30% of the area’s work force, compared to 7% at present. Factory jobs declined 55% between 1970 and 1990. Unemployment reached 18.3% during the 1983 global recession significantly above the national average.
Reflecting the economic collapse, people fled both the city and the region (steel was produced throughout the region’s river valleys). As a result, the city’s population shrank 55% between 1950 and 2010, when the haemorrhaging finally ceased. Pittsburgh was America’s 12th largest city in 1950, it now stands at 63rd. To be sure, the urban area – like all other cities – suffered from migration to the suburbs in those years, but the population of greater Pittsburgh (the seven regional counties referred to as the metro statistical area – MSA) also shrank nearly 20%, indicating people were not only leaving the city, they fled the hard-hit region.
In comparison, Cleveland’s urban population also has declined 58% since 1950. Unlike Pittsburgh, however, greater Cleveland’s population continued to expand into the 1990s. Not only did Cleveland’s suburbs absorb the urban flight, but outsiders remained attracted to the area. Unfortunately, this has now changed, as both Cleveland’s urban and regional population has contracted sharply during the past 25 years.
Only Detroit, confronting a similar existential threat from its dependence on the beleaguered auto industry, has had a comparable experience. Since 1950, Detroit’s urban population has contracted a staggering 64%! As a result of the recent Financial Crisis, the city shrank 30% since as recently as 2000 (there are some signs of stability lately, thankfully). Despite Detroit’s travails, however, arguably Pittsburgh’s experience was even tougher. While Detroit’s urban depopulation has been worse, the decline in Pittsburgh’s regional population exceeded that of Detroit, at least until recent years.
Post-Industrial Transition: Evidence & Lessons
Today, Pittsburgh is a different place. What does post –industrial Pittsburgh look like, and what are the lessons?
- It’s about jobs. Successful transitions to post-industrial prosperity require that sufficient non-factory jobs are created to replace those lost in manufacturing. To be sure, Pittsburgh’s manufacturing employment continues to shrink: shedding a further 47,000 jobs since 1990. Factory jobs in Pittsburgh now represent only 7% of the total compared to 9% in the USA overall. During this period, however, total jobs advanced by 8%, and the 130,000 new, non-manufacturing jobs more than offset the losses elsewhere.
- Pittsburgh experienced the consequences of relying on a single industry. Today, of the 9 different sectors defined by the US Bureau of Labour Statistics, five of them account for over 10% of Pittsburgh’s employment. And, of the 7 private, mon-manufacturing sectors, six have added jobs since 1990.
- Service Sector Economy: James Parton would be surprised to know that Pittsburgh is now a white-collar, service sector economy. During the past two decades, business and professional services jobs advanced 50%, and account for 16% of the total (compared to 14% overall in the USA). Likewise, jobs in the health and education sectors gained 50% during the period. Leisure and hospitality and finance employment are up 35% and 25% respectively.
- Exploit your Comparative Advantage: Simply put, this economic jargon means identify what you are good at, and build on it. In Pittsburgh’s case this is health care and education. In 1990, Pittsburgh’s world-class medical and educational institutions employed already nearly 15% of the city’s workforce (second largest sector). After two decades of strong growth, now these sectors account for 21% of total employment, compared to the USA average 16%. UPMC is the city’s largest employer – 60,000 staff.
- Innovate & Promote Knowledge-Based Industries: Pittsburgh business and government leaders have repeatedly emphasised the importance of key secular growth sectors: health care, technology, life sciences, media/film making, energy, and advanced manufacturing. In addition to health care, technology has huge potential. Carnegie Mellon University’s hugely successful Robotics and Entrepreneurship Programs are attracting talent and investment, including the well-publicised Google expansion and Uber’s decision to trial autonomous vehicles in the city. CMU emphasises the “commercialisation of ideas”, which underscores this sector’s potential job expansion. At present, tech jobs represents only about 2% of Pittsburgh’s workforce (stats likely understate the reality), but now are growing rapidly, up 4% already in 2017.
Even the city’s architecture reflects the transition. The imposing US Steel Tower has been adorned by the UPMC logo since 2007. Nabisco’s old home on Bakery Square is now the site of Google’s expansion. 31st Street studios film making takes place in a former steel factory. And, the former Armstrong Cork factory in the Strip district is now a luxury apartment complex for young legal and service sector employees.
- Attract Youth: One of the legacies of its history is that Pittsburgh’s population is elderly: 17% of the population is 65+ compared to the national average of 13%. At the risk of being ageist, typically youth brings risk-taking, spending, and entrepreneurship. Now, improved opportunities appear to be enticing young people to the city. Indeed, the share of the population between 20 and 40 years old has risen from 33% to 37% since 2010. The share in this cohort in dynamic cities like Austin and Boston is even higher (39% and 41% respectively), so Pittsburgh has room to grow.
- Collaboration: Beginning as early as the 1950s, Pittsburgh success was built upon active collaboration between actors in business, government, education, philanthropy, and civic society – “leaving it to the market” was not enough. As just one example, grants in the 1950s from the Mellon foundation were crucial in the development of University of Pittsburgh’s Medical School. And, as they say, the rest is history.
Just Getting Started: Mr Trump You Can Help
Despite its good start, Pittsburgh’s transition to post-industrial prosperity faces many challenges. For example, despite recent improvements, Pittsburgh job growth has lagged the national average – up 8% compared to 27% nationwide during the past two decades. And, while unemployment is low, joblessness in some of the metro countries remains above 7%.
Washington can play a role by helping supporting innovation and promoting “inclusive growth”. Start by recognising that protectionism does not support these aims, nor will it bring steel jobs back to the region. In response to global competition, the US steel industry has altered its technology from vertically-integrated mills to highly automated mini-mills. As a result, productivity has soared, requiring 1/10 the amount of labour to produce its products. Protectionism may (doubtful) lead to more steel production, but will not produce more jobs.
Pittsburgh needs to ensure the benefits of its achievements are widely shared. The Brookings Institute’s Metro Monitor gives Pittsburgh high marks for prosperity, but average readings for the “inclusiveness of growth”. Poverty at 23% remains above the national average (16%) and Boston at 21%. Pittsburgh ranks 17th (out of 50 US cities) for racial segregation in housing. Unemployment and educational achievement differs significantly depending upon race.
Training and education are key ingredients in ensuring the benefits of the transition to an innovation-based economy are widely share. Federal funding can play an important role.
Reflecting weak municipal finances, Pittsburgh’s infrastructure is old and poor quality, e.g. 16% of the city’s bridges are structurally deficient. Poor infrastructure impedes innovation, quality of life, and inclusiveness. President Trump should pass his promised infrastructure funding.
Surveys give Pittsburgh average marks on air and water pollution. This appears to be changing, as ranks 8th highest for the number of buildings with the LEDD environmental certificate. Indeed, Pittsburgh also as many “firsts” for LEDD designation: First Convention Center, first Bank, first Museum, etc. Needless to say, Mr Trump could do something that promotes the nation’s environment.
Mr Trump: Pass the World
At the risk of being dramatic, much of the world would benefit evaluating Pittsburgh’s experience. First of all, many other American cities are attempting the same transition from economic decline to post-industrial prosperity with varying degrees of success. In Cleveland, for example, employment has remained flat since 1990. The city has lost 100,000 factory jobs, but only the health and education sector has expanded. Pittsburgh reveals the benefits of greater economic diversification, as well as the gains from supporting high-growth, knowledge-based sectors.
President Trump may not represent Parisians, but France (and Europe in general) can learn from Pittsburgh too. President Macron inherits an economy plagued by high unemployment and social division. Despite Mr. Macron’s recent election victory, the French (and European) electorate believes the benefits of globalisation have not been widely shared. For example, since the Financial Crisis of 2007, French private sector employment has stalled, as job manufacturing job losses have not been matched by gains in the service sector. This is exactly what Pittsburgh has been able to achieve during the past two decades.
Finally, President Trump you are justifiably concerned that the US steel industry has suffered from heightened Chinese competition. China is undergoing an historic transition from heavily-polluting, industrial growth towards an economy focused on services and consumption. Again, sounds like Pittsburgh. In future trade discussions with China, therefore, America should encourage greater liberalisation of China’s service, tech, and health care sectors. The American economy and the people of Pittsburgh would benefit far more from new exporting opportunities in these key sectors than focusing on shielding legacy industries from competition.
Investment Implications
I am a Pittsburgh optimist; the buzz about the place has never been more evident. Structural change is happening, and prices are low – a perfect combination for investors. In addition, not everyone is a believer yet. In a recent TV piece identifying the location of the “new Hollywood”, the announcer marvelled it was Pittsburgh, “of all places”! Indeed. The best seems yet to come.
Of course, all are welcome to share a pint at the Harp & Fiddle in the Heart of the Strip District, especially our President and his team!