by Joel Kotkin
The author is the John M. Olin Fellow at the Pepperdine Institute for Public Policy and a fellow with the Pacific Research Institute.
Introduction
Even proponents of free trade often think that open markets generate no particular benefits to America’s big cities. And critics of free trade often maintain that imports harm cities by destroying jobs for lower-wage workers. But trade, in fact, has been a principal factor in the revival of many of America’s great metropolises in the past few decades.
For the most part, America’s cities have rarely been held in such low regard as today. The American city of the 1950s, with its rock-and-roll fantasies of corner candy stores, summers on the front stoop of the house, lunchpail union workers, and the relentless drive toward assimilation, has evaporated as assuredly as artist Norman Rockwell’s portrayals of idyllic small towns. Now the chaotic, undefined character of urban life in America, replete with quickly changing neighborhoods, legions of unconventional lifestyles, and diverse ethnic groups, places cities in the American imagination equivalent to the lowest rungs of Dante’s Inferno.
Conservative technophile George Gilder has maintained that the telecommunications revolution, which makes available all manner of information to the suburban and rural hinterlands, will deliver the coup de grace to the city’s long-drawn-out decline.1 Marxist thinker Mike Davis recently described contemporary Los Angeles as "Chiapas with Freeways."
Nevertheless, there is evidence that cities not only are holding their own but are even making comebacks, rediscovering their historical niches as centers for international trade. From the vast port of Los Angeles to the high-rise towers of Miami and New York, international trade is remaking many of America’s leading cities, laying the groundwork for their 21st century renaissance. And immigrants, especially, are helping to make those cities world-class commercial centers. Thus, preserving and expanding world trade will be a top issue for this country in general and for urban centers in particular in the 1990s and beyond.
The Importance of Trade
International trade is a growing sector of America’s economy. Only 6 percent of the economy in 1970, exports constituted 8.5 percent by 1980; today they are up to roughly 12 percent.2 Exports, which rose 90 percent between 1987 and 1993, are expected to rise another 9 percent in 1996, according to the economic forecasting firm DRI McGraw-Hill. Exports are responsible for about 20 percent of 1995 economic growth.3 International trade in 1994 accounted for about four-fifths of the economic growth in heavily urbanized California and nearly 40 percent in industrial Michigan.4
For cities, which have been losing jobs to suburbs for the past few decades, trade already is one of the leading sources of new, well-paying jobs. Since 1986, according to the U.S. Department of Commerce, the percentage of jobs supported by exports has grown from 7.6 percent to 10.9 percent.5 Equally important, jobs tied to exports pay an average of 13 percent higher in salaries than those aimed at domestic customers. Jobs in wholesale trade in California, for example, in a field dominated by international commerce, pay on average $36,000 annually -- far above the state average of $29,000.6
The urban concentration in exports is beyond question. Over half of World Trade magazine’s hundred fastest growing exporters, mostly in technology-related fields, are located in either metropolitan Los Angeles or San Francisco, with an additional 15 firms in metropolitan Boston. Those firms support the notion that urban areas, rather than catching up to the national economy, are emerging as leaders of the probable next stage of American economic development. That development is based largely on globally oriented networks of smaller, growing firms in highly specialized market niches. Many of the firms involved concentrate primarily on high-end business services, providing legal, accounting, financial, and communications assistance to overseas clients.
Urban Plight
The connection to world markets is particularly critical for cities because most in past decades have lost many of their traditional economic functions. For example, the urban industrial infrastructure has shrunk. Auto plants have closed or downsized in cities from Los Angeles to Detroit; Pittsburgh barely produces any steel while New York, which boasted over a million factory jobs in 1950, now has barely one-fourth that number.7
Many cities, once magnets of opportunity, now are incubators of large, dysfunctional populations. In 1960 only 26 percent of America’s poor lived in central cities; by 1990, that percentage rose to more than 42 percent.8
The decline in the quality of life -- associated with urban deindustrialization, the rise of urban crime, and the transformation of traditional neighborhoods into impoverished war zones -- has also helped spur a mass exodus of white-collar managerial jobs from the center cities. In 1970, downtowns accounted for about 80 percent of all office space; today they account for roughly half that amount.9 At the same time, the overall growth in demand for office space nationwide is only 1 percent annually, less than half the rate over the past two decades. In the past decade, Fortune 500 firms, the conventional anchors of downtown business districts, have deserted a remarkable 250 million square feet of office space, the equivalent of 250 of New York City’s Chrysler building.10
Even worse for traditional downtowns, virtually all high-growth companies, particularly in high technology, in past decades have chosen to occupy lower-rise, flexible space along the periphery of metropolitan regions. And major service firms show a marked preference for lower-rise, campuslike complexes located closer to their predominately suburban middle-class workforce.
Today, virtually all the fastest growing metropolitan regions of the country -- Atlanta, Dallas, Denver, Phoenix, Orlando, Houston, and Charlotte -- find most of their economic activity scattered throughout various urban minicenters. Booming Dallas has a downtown with a 35 percent office vacancy rate, highest among the nation’s largest regions, but its suburbs have only a 13 percent vacancy rate.11
In contrast, job growth nationwide has been slowest in traditional, highly centralized regions. Manhattan, for example, has discovered during the past five years that it cannot afford two massive office districts. So although midtown remains marginally successful, the old Wall Street downtown district has become, as Barron’s recently put it, a ghost town of boarded-up Art Deco towers.12
Trade and Cities in History
Amid an otherwise bleak picture, the growth of international trade has emerged as one of the central elements reshaping the economy of our urban areas. In many ways, that reflects a "back to the future" scenario in which cities return to the very role that was at the core of their development from the beginning of civilization.
From the ancient riverfronts of Ur in Mesopotamia to Thebes in Egypt, to Alexandria, where the Nile meets the Mediterranean Sea, ancient cities found their sustenance by buying and selling from other lands.13 Virtually all the great cities of the Atlantic era -- from Antwerp and Amsterdam to London and New York -- were located on the ocean or with easy access to the open sea.
Urban trading centers long have been hotbeds for the creative as well as the commercial, merging cultures, technologies, and industrial concepts. Seafarers from the multiethnic coastal cities of early Renaissance Iberia first learned of Indian and Chinese systems of navigation. The earliest progenitors of Asian capitalism were in cosmopolitan coastal cities such as Bombay, Shanghai, Singapore, and Nagasaki.14
The sociological aspect of urbanity has worked hand in hand with commerce. Trade connections have tended to follow patterns of ethnic migration. Jewish migration, for example, first to the Netherlands and later to the Americas, linked a vast network of traders across international boundaries in cities from San Francisco and Singapore to New York, Paris, and London. The French historian Fernand Braudel noted that the great economic boom in the Low Countries in early European history benefited by welcoming outcast groups such as Jews and Huguenots. Braudel wrote: ". . . the miracle of toleration was to be found wherever the community of trade convened."15 Not surprisingly the Netherlands also was among that epoch’s freest trade and commercial systems.16
Also the migration of British-descended peoples to the New World, Oceania, and South Africa helped form the first truly transnational trading regime.17
In contrast, trade often evaporates when cities have moved away from tolerance. Witness the rapid decline of Iberian trade following the expulsion of the Jews in 1492, the Inquisition, and the removal of the Moriscos, or former Muslims, in 1609.18
Los Angeles Crossroads
Nowhere is the efficacy of the free-trade regime more powerful than in contemporary Los Angeles, now the nation’s largest and most important trading city. Even when the region’s traditional manufacturing power, aerospace, has been severely cut back, the flourishing trade-oriented economy has played a central role in the region’s recent recovery, which resulted in the creation of more than 90,000 new jobs between January 1995 and January 1996.19
Much of that increase occurred in sectors, such as wholesale trade, entertainment, tourism, and business services, closely tied to international trade activity. Statewide, 25 percent of California’s economy is now tied to international trade: a full quarter above the national average. Furthermore, those trade-generating sectors, according to economist Steve Levy of the Center for the Continuing Study of the California Economy, are now growing twice as fast as the rest of the state economy.20 In 1995 exports of California electronics rose by more than 30 percent and shipments of industrial machinery rose by 22 percent.21
Much of that boost came from the region’s premier location as the center for trade with the burgeoning Pacific Rim, where the market for exports is growing at the approximate rate of 12 percent annually.22 Since 1990, exports to Taiwan from California have risen by more than 65 percent, while those to South Korea have risen nearly 45 percent, and those to Hong Kong have surged by a remarkable 88 percent.23
Largely because of its Asian connections, Los Angeles, once a trade backwater, has virtually doubled its share of the nation’s trade activity. Today California ranks as the nation’s largest port and customs district. The two ports of Los Angeles and Long Beach -- where tonnage has tripled since 1981 -- together constitute the world’s third largest container port, following only Hong Kong and Singapore. The next closest American container port, New York, ranks 11th in the world.24
The economic impact of such trade has been enormous. According to a study by the Long Beach-based World Trade Center Association, total trade has produced nearly 300,000 jobs in the region since 1990,25 helping to make up for many of the approximately 400,000 jobs lost during the aerospace-induced recession. That growth has accelerated in recent years, rising 17.7 percent in the first half of 1995, as Asian trade continued to surge.26
Immigrants Helping Exports
Like the earlier evolution of trading cities, much of the recent growth in the United States has a profoundly human cause. In the past two decades, Southern California has emerged as the leading destination for new immigrants, particularly those from East Asia, Latin America, and the Middle East. Many of the immigrants, observed Los Angeles-based futurist Alvin Toffler, bring with them financial, market, and other business connections critical to success in the global economy.
Nowhere is the ethno-trade connection more obvious than in the rapid growth of Los Angeles-based servicing, warehousing, and distribution of items imported from or exported to Asia or Latin America. Once a series of deserted warehouses and dying factories east of downtown Los Angeles, for example, Toytown, as it is known, has developed into a hothouse of international trade. Founded by an immigrant from Hong Kong, Charlie Woo, the district now consists of more than 500 toy importers, warehouses, and distributors, employing approximately 6,000 people. Revenues are estimated as high as $1 billion. Most of the owners and workers of those businesses are immigrants -- Chinese, Vietnamese, Latino, and Middle Eastern people.
"The customers are immigrants, the merchants are immigrants, that’s the beauty of international trade," Woo explained. "It’s not one language, one culture but people of different backgrounds. LA is becoming the ultimate middle man, not only for Asia, but for Mexico, the Midwest, the South." On weekdays, and particularly on weekends, Toytown is crammed with shoppers, including representatives of toy buyers from as far away as the Carolinas and Argentina. "LA is the best place to trade globally," Woo said. "It’s the new Hong Kong."
But the success of Toytown is not singular. Other trade-related businesses -- in textiles, flowers, vegetables, fish, and other food processing as well as large trucking operations -- cluster in the downtown district. As a result, although vacancy rates in the high-rise office towers hover at more than 20 percent, industrial and warehouse space downtown has vacancy rates at half that level. Indeed, according to Coldwell Banker, in terms of post-1930s buildings, the real vacancy rate may be only 3 percent or less.
As a result, blocks away from office buildings that are now totally run down, local developers are planning to build new trade-oriented structures. "The people who own the high-rises are going to face the music, but we are developing new properties for where the future is," observed Doug Hinchliffe of Lowe Development Corp., a major builder of industrial and warehouse space now developing a 23-acre import-export center in downtown Alameda. "It’s the importers, the garment people, the immigrants, the Asian entrepreneurs who are driving things," he added.
Selling Smart
But such transactions reflect only part of Los Angeles’s trade-based resurgence. Increasingly, much of the growth can be ascribed to another urban strength -- its predominant role in what the Japanese economist Taichi Sakaiya has called "knowledge value industries."
Such industries include tourism, publishing, fashion, and multimedia, all of which remain heavily clustered in a handful of cities, predominately in California and New York. In contrast to traditional industries such as petrochemicals or textiles, knowledge value involves less engineering skill, which is susceptible to easy duplication, but more of the intangible power of originality. Highly advanced economies, such as those of the United States, Western Europe, and Japan, increasingly must find their niches, Sakaiya has argued, in fields relatively resistant to competition from lower-cost producers in the Third World.27
Since 1980, the services share of American exports has grown from less than 20 percent to more than 30 percent. Today the United States is the undisputed leader in services, exporting nearly $300 billion in such "invisible trade" -- including income from overseas assets -- in 1994.28
Entertainment Exports
Artists and entertainers mostly tend to congregate in major cities; New York and Los Angeles alone account for about 14 percent of the nation’s artists as well as a large percentage of the design communities.29 Los Angeles leads the nation in the number of mathematicians, engineers, and skilled technologists. The city ranks third, behind only San Francisco and Boston, as a center for scientific research.30
In Southern California and other urban regions, those knowledge professions can be applied to a vast array of products, from aircraft to satellites to medical equipment -- all fields where California leads the nation in terms of jobs -- that have long been the cornerstones of its export economy.31
Entertainment, an industry whose employment in Los Angeles County alone has more than doubled since the late 1980s, is increasingly crucial among "knowledge value" exports.32 Although costs are high, entertainment-related companies in Hollywood have developed products that remain the top supplier for the world market. Barely accounting for 30 percent of Hollywood’s sales in 1980, international markets now account for more than half of all $4 billion in annual movie revenues. By the year 2000, helped by expanding markets in Eastern Europe, Latin America, and East Asia, overseas markets are expected to be responsible for 70 percent of all American film revenues.33
The demand for entertainment-related products encompasses many goods and services, such as designs for theme parks (including the new Universal Studios development in Osaka), "theatrical lighting" for shopping centers, as well as music, film, and television productions. The percentage of revenues from foreign sources for the Walt Disney Company has tripled to almost 25 percent since 1984 and has been growing at almost twice the rate of domestic business.
The continued dominance of Los Angeles over the world mass-culture market grows directly from its highly concentrated urban economy. Charles Como, founder of the Underground Network, a Hollywood-based music consultant specializing in putting music over the Internet, has observed that developing artistic projects requires intensive face-to-face contacts among producers, artists, and marketing professionals. "A group of people in the country simply can’t determine where music is going," said Como. "You have to be here in a place like Hollywood to be with the artists who drive the whole process."
The intense concentration of creative people allows for what Jonathan Katz, founder of one of Hollywood’s top prop makers, calls "face-time." In an entertainment project, collaboration can mean that the best ideas come over lunch or in casual conversations during the day. With brief lead times, creators’ ability to marshal known assets from numerous quarters often determines success or failure.
The density of skill sets, the existence of vast arrays of freelancers, specialists, and service providers allows American producers to create a greater number of unique products than anywhere else in the world. "The world is buying what we produce," observed Phil Romer, the producer of The Simpsons and Garfield cartoons for a global market. "There’s something unique here that comes from nowhere else."
New York International
Similar trade-led urban growth can be seen in New York, which suffered grievously from economic setbacks over the past few decades. Like Los Angeles, for example, New York suffered severely from the 1990 recession; the region lost more value in more industries and more jobs than any other in the nation.34 With the highest cost of living in the nation, it also sustained the largest net outmigration of any American region.35
In such hard times, international trade and the global economy increasingly are aspects to which New York business, academic, and political leaders could look for their economic salvation. With New York’s decreasing importance in the national economy, observed Mitchell Moss of New York University’s Wagner Graduate School of Public Service, "the scope and character of New York’s economy will be largely shaped by its interaction with the global economy."
Even more so than Los Angeles, which still boasts a powerful industrial base, New York’s future economic growth probably will be tied to service fields such as advertising, media, and finance. That situation was the case even in the 1980s when foreign banks accounted for more than half the total growth in banking employment in the region.36 Indeed, despite its relative decline as a merchandise trade exporter, New York City continues to dominate in the world of high-end business services -- aided by a local population drawn increasingly from overseas. By the year 2000, for example, New York’s nearly 2 million Latino and half million Asian populations will add another half million to their ranks.37
Typical of New York’s new breed of service exporters is Audits and Surveys, a market research firm located in Manhattan’s fashionable Chelsea section. Founded 30 years ago, the company has been expanding rapidly in recent years into global markets, with offices in Canada, Latin America, Asia, and Europe. Foreign-based clients include Bell Canada, the Citizen Watch Company, Minolta, Nestlé, Polygram, and Scandinavian Airline Systems.
To Audits and Surveys founder Sol Dutka, the New York locale is critical to his overseas marketing because most major global companies already have a strong presence there. In New York is a cosmopolitan cultural climate that, he pointed out, he is unlikely to find in less costly but more out-of-the-way locales such as Charlotte, North Carolina. "When I go international," Dutka noted, "I can access all the potential clients right here."
Similarly, like Woo in Los Angeles, Dutka credits New York’s diversity with boosting his firm in the field of global business. Upwards of three-quarters of America’s 10 million immigrants during the 1980s settled in a handful of urban states, with New York and California as destinations for about half that total. As a result, 8 of the nation’s 10 most diverse counties are located in either the San Francisco Bay, New York, or Los Angeles areas.
For Dutka, the son of Czech Jewish immigrants, those immigrants provide yet another critical creative spark for his company. In recent years, Dutka’s employees increasingly reflect the changing population base in the New York area, with more Russian Jews, Koreans, and other Asians than in the past. Employing immigrants, Dutka has suggested, gives his firm a critical understanding of both foreign markets and America’s own changing demographics.
"How many people in Greenville or Charlotte know about East Indians or Koreans -- both big markets?" Dutka asked. "How would you know there are five different kinds of His-panics -- and each one is a different market?"
Miami’s Sunny Prospects
Another city turning immigration and cultural diversity into a trade advantage lies to the south in Miami. High crime rates and massive outmigration of long-time residents in the 1970s and 1980s suggested to many that the old vacation mecca was in a serious, long-term decline. But once again, the surge in cross-border trade with Latin America and the growing economic clout of the city’s Latino residents -- including 650,000 Cubans, 75,000 Nicaraguans, and 65,000 Colombians -- have helped forge a new role for the supposedly dying city.38
In 1994, for example, the Miami area accounted for nearly one-quarter of all American trade with South America, including nearly two-fifths of all exports. Miami also accounts for two- fifths of all American trade with the Caribbean and almost 60 percent of all American trade with Central America.39 With the keenness of the doges or podestas of Italian city-states, south Florida’s political and economic elites are aware of the critical nature of their trade connection.
"We’re the only state in America with a foreign policy," observed Buddy MacKay, the state’s Lieutenant Governor. "And our foreign policy is that we want to increase the hemispheric free trade and we want Miami to be the capital of that area."40
Through the 1990s Miami’s trade has been growing, usually by double-digit rates annually, with Latin American countries such as Brazil, Colombia, Argentina, Venezuela, and the Dominican Republic as the top five export destinations. In the first half of 1995, for example, Miami’s "Latin strategy" boosted the area’s trade volume by an outstanding 19.4 percent.41 Leading export items included such high-value products as automatic data processing equipment, telecommunications gear, and car parts as well as garments.42
But those connections, noted Modesto Maidique, President of Florida International University (FIU), transcend merchandise trade. In the past three decades, Miami has also become a major player in both business and financial services for the entire Latin American region. Since 1984, for example, Miami International Airport has nearly doubled the number of foreign passengers, many of whom come to the city from Latin America for vacation, business, and shopping.43 Similarly, Miami’s airport alone accounts for a remarkable 70 percent of all air cargo transport to and from Latin America and the Caribbean.44
Multinational Mecca
Much of the trade expansion has been driven by the rapid expansion of multinational firms in the Miami area, now numbering more than 300. Nearly half of them have set up shop only during the past decade. Eighty percent of those firms are engaged in business and other financial services as well as in construction.45
Proximity to markets, particularly Latin America, is a critical element in keeping companies in the Miami area. "If I have an emergency deal in Caracas, I can go there and be home in time for dinner tonight," observed Jay Malinia, president of Manufacturer’s Export and Equity Group, a Miami-based firm that helps American manufacturers enter Latin American markets.46
The Latin connection has also helped transform Miami into a powerful center for a U.S.- based Spanish-language medium. Both Univision and Telemundo broadcast from Miami to Latinos in the United States as well as in Spanish-speaking nations to the South. "If you take away international trade and cultural ties from Miami, we go back to being just a seasonal tourist destination," observed FIU’s Maidique. "It’s the imports, the exports, and the service trade that has catapulted us into the first ranks of cities in the world."
Valued Immigrants
As in Los Angeles and New York, immigrants have been critical to the transformation of Miami. The movement of Cuban exiles into south Florida brought an entire professional class accustomed to commerce in Latin America and other points south. Those advantages are part of the reason why competing Southern cities have been unable to wrest the trade business from Miami. But it is instructive to note that up-and-coming Florida cities, such as Orlando and Jacksonville, are also focusing on international trade as a way to develop their economies -- for example, by expanding their port or airport facilities.47
Beyond Houston’s Oil
Like Miami, Houston has been largely saved from permanent economic decline by a trade economy that, according to University of Houston economist Barton Smith, now accounts for approximately 10 percent of the region’s employment. Since 1986, tonnage through the 25-mile-long Port of Houston has grown by a full one-third, helping the city recover the jobs lost during the "oil bust" of the early 1980s.48
"The energy industry totally dominated Houston by the 1970s -- after all oil has been at the core of our economy since 1901," explains Smith. "Every boom leads people to forget other parts of the economy. After the bust, people saw the importance of the ports and trade."
Like most trading cities, Houston’s trade commitment is increasingly dominated by services. No longer the prevailing center in oil production or equipment, Houston, noted Smith, has developed into a key service sector for energy and other industries. Business in hotels and traffic at the airport -- up 50 percent since 1990 -- are as good indicators of Houston’s economic future as oil rigs or ships loaded with petroleum.
"Cities like Houston are natural places for making deals -- for raising money, arranging shipping, doing meetings and getting all kinds of business services," Smith suggested. "Houston’s connections to the world economy are underestimated because you don’t get a handle on all the accountants, financial services and design services that we offer to international clients."
Ethnic Diversity
One critical factor, Smith said, is Houston’s highly diverse population base. Like Los Angeles, the Texas city is a sprawling, sometimes seething melting pot of contrasting ethnic groups; nearly one-quarter of the population is Hispanic and as much as another 8 percent Asian.49
That polyglot mixture plays an important role in developing clients and contacts for exporters such as Anaheim Industries, a firm that specializes in van conversions. Ralph Maldonado, president of Anaheim, sells a large portion of his company’s hottest product -- ballistic resistant vehicles -- to South American and Caribbean customers. Such conversions now account for roughly 40 percent of Anaheim’s sales, up from 10 percent three years ago. "There’s a huge percentage of Hispanics here," said Maldonado, himself a Puerto Rican from New York City. "This makes it a very comfortable environment for them."
In addition, Maldonado credited Houston’s location near the Gulf of Mexico as bringing additional benefits for his business. "It’s a good place because Houston is perfectly located," said the entrepreneur, who employs 115 workers. "You can ship to anywhere from here -- particularly in Latin America or Mexico."
Magnet for Manufacturers
Houston’s specialty -- concentrated largely in the shipment of raw materials and commodities such as oil and organic chemicals -- also provides an ideal environment for companies, like Woodland Millworks, which uses lumber imported from South America to make moldings. The cargo ships that leave their goods on Houston wharves provide an ideal incentive for manufacturers who use such raw materials.
"We’re just three miles from the port of Houston and that makes things very convenient," observed Charles Vignal, who moved his company from the Texas Panhandle to Houston a decade ago. "That’s why we’re here. Being in Houston makes us profitable."
In his business, Vignal explained, transportation costs could consume as much as 40 percent of his total revenues. Proximity to his source of Latin American lumber also provides easy access to leading markets such as Canada, which accounts for about one-third of the sales by his 100-person company.
Detroit’s Destiny
It is not just coastal cities that benefit from world trade. Surprisingly, Detroit has experienced benefits. For years seen as a center of arch-protectionist sentiment, the Detroit area has witnessed its international sales rise dramatically during the past decade. With annual increases in exports of more than 10 percent since 1990, the area now boasts the nation’s third largest customs district, behind just Los Angeles and New York.
Unlike Miami and Houston, Detroit’s focus is largely northward to Canada -- just a hop across the bridge to Windsor -- which accounts for two-thirds of its exports. The city also looks to the European Union. Indeed, Canada accounts for the vast majority of all exports derived from Michigan, with the European Union in second place. Exports are responsible for nearly a half million jobs in the state.50
In many ways the core of Detroit’s trade strength is connected to the very industry -- automobiles -- most associated with its long-time economic problems. After battling foreign competitors, usually unsuccessfully, the area’s automotive complex staged a remarkable comeback in the 1990s. Much of the growth, noted economist David Littman of Comerica Bank in Detroit, has occurred among small, high-tech firms that have become critical suppliers to automotive and other industrial firms.
"The advantage you have here," Littman explained, "is the concentration of state-of-the-art technologies in value-added industries. From Ann Arbor to Auburn Hills, you have any kind of engineer you want. These people have been working on the productivity issues that industrialized countries around the world are concerned with."
Typical of the firms Littman spoke of is Menlo Tool Company, which has been producing precision cutting tools for the auto industry since the mid-1960s. Today the firm exports nearly 55 percent of its products overseas through its dealer network. Although automotive markets are still key, Menlo also sells to industrial and aerospace firms across the world.
John Falk, the company’s executive vice president, said the Detroit area provides critical advantages to any firm seeking to produce state-of-the art industrial equipment for the world market. "We have an exceptional workforce here that’s well educated," said Falk, whose firm enjoyed $10 million in sales last year. "Michigan has an enormous concentration of skills. There are people and skills that are available right here. It would be a logistical problem if you tried to do this, say, out of Montana."
Seattle Sells
But perhaps no group of cities has gained more from burgeoning global trade than those located along the West Coast. Like Los Angeles and New York, cities such as Portland, San Francisco, and Seattle have excelled in creating "knowledge value" products, from airplanes to software to semiconductors. Those areas of product excellence, plus a prodigious location on the Pacific Rim, have turned that region into the most trade-dependent in the nation.
One might consider Seattle and its setting in Washington State, which now ranks as the nation’s fifth largest trade district. Trade there, targeted heavily toward the Pacific Rim, accounts for 10 of the state’s 11 largest trading partners. That trade has expanded quickly in recent years. Between 1987 and 1993, for example, the state’s exports surged 165 percent, more than 80 percent above the national average, an increase that was the largest for any of the major trading states.51
As a result of that surge, Washington State, with only 2 percent of the nation’s population, has 7 percent of all American trade. One of every five jobs in the Puget Sound region is tied to international trade.52 quot;There’s a huge interest in trade activity here," observed Paul Sommers, executive director of the Northwest Policy Center. "There’s over forty trade organizations in Seattle alone. Being in the extreme left-hand corner of the country, you have to look around for your markets."
Sommers added that Seattle is beginning to expand the range of its trade economy. Although traditionally as much as two-thirds of the dollar volume of the region’s exports is tied to Boeing, the giant airline manufacturer, more and more of the area’s exports are in products and services tied to high-tech products, including biotechnology and software. The latter sectors boasted $3 billion a year in exports.53
"The dynamic forces are here," said Sommers. "They can be seen in high tech and software. Increasingly it’s not just manufacturing airplanes -- it’s becoming more and more complex. It’s like the whole Silicon Valley phenomena."
San Francisco Shipments
Indeed, in terms of high-tech exports from urban America, few places have outperformed the Bay Area. The Silicon Valley area alone accounts for approximately one-third of all the nation’s high-technology exports,54 helping establish San Francisco as the nation’s fourth largest port. In 1995 alone, shipments of semiconductors from the region’s airports and ports jumped a remarkable 50 percent, helping spur the region to a strong 15 percent growth in trade volume and helping boost employment in the region by 46,000 jobs.55
The Bay Area’s leading exporters include a virtual "who’s who" of the high-tech elite, led by Hewlett-Packard, Oracle Systems, and Varian Associates. Although founded by native-born Americans, many of those companies rely heavily on immigrant engineers, who account for as much as one-third of their engineering workforce.56
Yet increasingly much of Silicon Valley’s trade -- like that of such diverse cities as Houston, Miami, and New York -- revolves around more service-related fields such as software. In the past decade, entrepreneur David Lam has made that transition. In 1980 the Vietnam-born Lam founded Lam Research, a semiconductor equipment company, which now has $1.5 billion in sales and more than 4,000 employees.
But by the late 1980s, Lam, like other valley entrepreneurs, saw that the real competitive advantage resided in software. So in 1989 he founded Expert Edge, a company that specializes in programming the sophisticated machinery used in the semiconductor business. "This is where the valley is now going," he stated, pointing to such successful software- based firms as Netscape, Yahoo, and Oracle. "It’s where we are best and most competitive."
Another big change, according to Lam, is the quickness of Silicon Valley firms to sell overseas. Traditionally, those technology firms established themselves first in the domestic market and then looked into foreign markets. "Today everything’s global," Lam said. "By the time you get your concept, you have to be ready to go overseas."
At Expert Edge, for example, nearly 30 percent of all sales are overseas, mostly to Europe and Asia. That growth, Lam said, has been aided by the multiracial character of the Valley, where Asians now own at least 660 high-tech firms and account for one of every three engineers. At Expert Edge, for example, Lam has key personnel from such varied locales as the Philippines, China, Taiwan, Malaysia, and Singapore.
"We use every personal and cultural connection we have," he explained, "to get in all the key Asian markets. We see our diversity as a huge asset."
Conclusion
Clearly, if global trade were to be squeezed by protectionist pressures, the first and most obvious losers would be the nation’s great cities. If America’s overall economy has be-come ever more dependent on global markets, that situation is doubly true of large cities that are struggling, often against great odds, to find a new economic role in the highly dispersed economy of the 1990s.
Fast-growing East Asian countries increasingly produce and trade among themselves the kinds of generic industrial goods created and exported by America’s heartland. Nearly half of Asia’s total commerce is already self-contained within the region, up from barely 40 percent just five years ago.57 That will put a premium in the future on "knowledge value" products that originate more from America’s urban areas. If America turns away from global trade, others no doubt will gleefully pick up the slack.
Trade is the lifeblood of cities, and global trade is the elixir of urban regions. Any attempt to cut off that vital source of nourishment would plunge America’s greatest cities -- from Los Angeles to New York -- into a deepening pit of decline and despair. In the end, anything that kills trade would not only create havoc in the marketplace but would shatter what has become the last, best hope to revive our great cities.
Notes
1 "Tom Peters and George Gilder Debate the Impact of Technology on Location," Forbes, February 27, 1995.
2 James Aley, "New Lift for the U.S. Export Boom," Fortune, November 13, 1995, p. 73.
3 Fred Bleakley, "Economists Predict Strength in Exports," Wall Street Journal, December 29, 1995, Section A, p. 2.
4 Ibid.
5 Aley, "New Lift for the U.S. Export Boom."
6 California Employment Development Department, 1994 estimates.
7 Mark W. Bitz, "New York Burdens the Productive," American Enterprise (March-April 1995), p. 12.
8 Susan E. Mayer, "Successes and Failures of the Great Society," Jobs and Capital, vol. V (Winter 1996), p. 24.
9 Jonathan Laing, "Downtown Blues," Barron’s, March 25, 1996.
10 Rich Hampton, "Skyscraper," Chicago Tribune, November 26, 1995, Real Estate section, p. 1.
11 Laing, "Downtown Blues."
12 Laing, "Downtown Blues;" Hampton, "Skyscraper."
13 Alberto F. Ades and Edward Glaesner, "Trade and Circuses: Explaining Urban Giants," The Quarterly Journal of Economics, 110, Issue 1, p. 216.
14 For an excellent discussion of these developments, see Phillip Curtin, Cross-Cultural Trade in World History (Cambridge U.K., Cambridge University Press, 1984).
15 Fernand Braudel, The Perspective of the World, vol. 3 (New York: Harper and Row, 1984), p. 30.
16 Immanuel Wallerstein, The Modern World System: Capitalist Agriculture and the Origins of the European World Economy in the Sixteenth Century (New York: Academic Press, 1974), p. 194.
17 Brinley Thomas, Migration and Urban Development: A Reappraisal of British and American Long Cycles (London: Methuen, 1972).
18 Wallerstein, op.cit,, p. 213.
19 California Employment Development Department.
20 "California: Back in the Picture," Economist, December 2, 1995, p. 22.
21 David Hensley and Kathryn Chinn, "California Liftoff," Economics and Market Analysis (New York: Salomon Brothers, January 1996), p. 4.
22 Aley, "New Lift for the U.S. Export Boom."
23 California World Trade Commission.
24 International Intelligence Services, customs data; Center for the Continuing Study of the California Economy; Containerization International and Port Development International.
25 Greater Los Angeles World Trade Center Association.
26 California World Trade Commission.
27 See Taichi Sakaiya, The Knowledge-Value Revolution (New York: Kodansha Publishers, 1991).
28 Economist, August 19, 1995 p. 93; U.S. Bureau of Labor Statistics, U.S. Commerce Department.
29 Joan Agajanian Quinn, "The Arts Are Vital to California’s Economy," California Economic Development Report, Orange County Business Journal, April 1, 1994.
30 Emrys Jones, Metropolis (New York: Oxford University Press, 1990), pp. 182-183.
31 Trade Watch Data Service.
32 California Economic Development Department.
33 Alan Citron, "Hollywood Goes Boffo Overseas," Los Angeles Times, March 30, 1992.
34 New York Regional Plan Association, A Region At Risk: The Third Regional Plan for the New York-New Jersey-Connecticut Metropolitan Area (New York: New York Regional Plan Association, 1996), pp. 32-33.
35 William Frey, University of Michigan, based on U.S. Census Bureau estimates, "The Cost of Living State by State," August 4, 1994.
36 Hugh O’Neill and Mitchell Moss, Reinventing New York: Competing in the Next Century’s Global Economy (New York: Urban Research Center, Wagner Graduate School of Public Service, New York University, November 1991), p. 8.
37 David Firestone, "Ethnic Shift Is Forecast in New York," New York Times, March 29, 1995.
38 John Nordheimer, "Nesting Beyond the Snow-birds: Foreigners Flock to Miami’s Condominiums," New York Times, February 20, 1996, p. D1.
39 Miami Business Profile, The Beacon Council.
40 Charles Lunan, "Florida Ships Out Exports to Western Hemisphere," Ft. Lauderdale Sun-Sentinel, December 25, 1995.
41 Jerry Jackson, "Business with Other Countries Likely to Keep Growing: Demand Rises for Goods Made or Grown in State," Orlando Sentinel, January 8, 1996; Dade County Seaport Department, Port of Miami, 1970-1994; the Beacon Council; and Bureau of the Census, 1994.
42 The Beacon Council; Bureau of the Census, 1994.
43 Dade County Aviation Department, Miami International Airport, 1970-1994.
44 Miami International Business Report, Midyear 1994, p. 4.
45 Miami’s Multinational Business Community, 1995; The Beacon Council.
46 "Multinational Miami," "Miami: Business Capital of the Americas," supplement to Newsweek Inter-national, May 30, 1994, p. 10.
47 David Poppe, "The Trade Engine Hums," Florida Trends, January 1996.
48 Houston: Economic Highlights, Greater Houston Partnership, January 1996.
49 Rick Wartzman, "Houston Turns Out to Be Capital of the Egg Roll," Wall Street Journal, December 7, 1995.
50 Michigan International Trade Authority, Michigan Jobs Commission.
51 Bureau of the Census, Location of Exporter Series, 1987-1993.
52 Washington Council on International Trade.
53 Ibid.
54 Annalee Saxenian, "Lessons from Silicon Valley," Technology Review, July 1994; Adam Feuerstein, "Trade Boom Puts Bay Area Ports in the Chips," San Francisco Business Times, December 22, 1995. 55 John Markoff, "Silicon Valley’s Economy Called Strong," New York Times, January 15, 1996, p. D2.
56 Andrew Pollack, "It’s Asians’ Turn in Silicon Valley," New York Times, January 14, 1992.
57 Eduardo Lachica, "Intraregional Trade Increasing in Asia," Wall Street Journal, November 17, 1995.
Freedom to Trade: Refuting the New Protectionism is Copyright © 1997 by the Cato Institute. All rights reserved.
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