Pittsburgh is a classic story of rapid growth in manufacturing, sudden decline into rustbelt status, and more recently, an amazing revival as a brainbelt. When the war of 1812 cut off imports from Great Britain, Pittsburgh rose to the challenge. It benefited from coal mines nearby and within a few decades developed into a major manufacturing hub with over 1,000 factories that produced everything from iron and steel to brass, tin, and glass. For eighty years, from about 1865 to 1945, Pittsburgh was an industrial powerhouse and the leading steel producer in the world. It became the third-largest home for company headquarters in the United States after New York City and Chicago and was known as a muscular blue-collar town. Then, in a devastating decline that lasted for forty years until the mid-1980s, the steel plants closed and half of the city’s population fled either to the suburbs or to other cities that offered jobs. Not that every major company left. Several Fortune 500 companies such as PNC Financial Services, PPG Industries (the chemical, paint, and glass giant), Wesco (a Westinghouse spin-off), a much-reduced US Steel, Kraft Heinz (a Warren Buffett investment), and Dick’s Sporting Goods have their headquarters in Pittsburgh, and the skyscraper of Mellon Bank still dominates the city, even though its headquarters moved to New York City after the merger with the Bank of New York. Still, even with companies such as these remaining, Pittsburgh had no choice but to look for a different future. Its hospital system and universities would become the biggest employers and magnets for a new generation of “smart” companies such as Google and Uber.
It is easy to overdo nostalgia for the past. After all, the dirty growth of heavy industry resulted in huge pollution of air and water. Manufacturers offered jobs, but racial barriers remained. Curtis Porter, the former dean of Penn State’s feeder colleges, recalled, “My father was a smart steel worker but he faced lots of obstacles moving beyond a job on the line. In planning the future, we don’t want to go back to the past with its racial prejudice. Misguided urban redevelopment projects destroyed vibrant African American communities by cutting roads through them, hastening their downfall when the steel jobs disappeared.”7
Donald Carter, the director of urban design at Carnegie Mellon, ticked off the strengths of rustbelt cities like Pittsburgh for us: historic neighborhoods and towns are low-hanging fruit for redevelopment; universities are magnets for young people and talent; vacant land and homes give a boost to affordable housing; unlike Arizona and Texas, fresh water is abundant; and parks and cultural amenities remain. But the problems in the city before its renaissance seemed overwhelming: crime-ridden neighborhoods had lost their soul; the population was aging; the economic decline exacerbated racial tensions; huge, unfunded pension obligations and a shrunken tax base resulted in budget deficits and high debt.
The University of Pittsburgh Medical Center became the metro’s largest employer, with 110,000 employees. UPMC ranks among the nation’s top fifteen hospitals; it insures 3 million people and is a major health care group, with twenty hospitals and five hundred clinics. Two large universities make education the other leading industry. The University of Pittsburgh employs 19,000 faculty and staff, and it has 29,000 students and an $800-million research budget;8 Carnegie Mellon is world-class in computer science and engineering.
Randal Bryant, dean of computer science at Carnegie Mellon when we met him,9 pointed out that the turnaround came neither overnight nor without huge effort:
Computer science has been important since the 1950s, and Carnegie Mellon was always ranked among the top three with Stanford and MIT, but we had no links with the business community. Until the 1990s, the best talent left here, and we only had a few successful spin-offs like the early Lykos search engine. Our biggest coup was to attract Google in 2006, which now has over five hundred people virtually next door to our computer center. We graduate 150 students per year in computer science and the same number as engineers. Yes, some go to Silicon Valley and Seattle, but many like to stay as long as there are companies that do interesting things.
Of course, having affordable housing when the costs in Silicon Valley had gone through the roof helped a lot, too. Like Google, Uber came to Pittsburgh because of Carnegie Mellon’s strength in computer science. Jeff Holden, chief products manager of Uber, called Carnegie Mellon the “best in the world in academic robotics research.”10 Uber started its own Advanced Technologies Center next door to Carnegie Mellon’s Robotics Center and, to the consternation of some, hired away some of the university’s top faculty, researchers, and technicians, although a deep bench remains. Uber has now made the Pittsburgh region the testing ground for its development of self-driving cars-on-demand.
There is even a second generation of high-tech start-ups founded by ex-Google employees, such as Duolingo, a creative app used for learning foreign languages, and Covey, another app aimed at helping parents connect with their communities. And there are others: a national chain of maker-spaces called TechShop, the incubator Ascender (formerly called Thrill Mill), and co-working spaces such as Beauty Shoppe.11 Slowly, a high-tech network is forming that helps to keep top talent in Pittsburgh.
James Garrett, dean of the College of Engineering at Carnegie Mellon, believes that sharing brainpower is beginning to pay off. “We have a strong metallurgy department that works closely with the researchers of companies like Alcoa, US Steel, PPG, and Allegheny and is focused on the rapidly changing requirements of the car industry.” Allegheny County Community College offers training programs combined with apprenticeships to help train workers for the shale-gas industry. Curtis Porter, now on the mayor’s staff, told us that “community colleges are beginning to train local youth from our communities for the jobs of the future. That includes research jobs in nearby labs.”12
Meanwhile, the Allegheny Conference—a coalition of bankers, businessmen, university people, community leaders, and town officials—has played the part of connector, working hard to clean up a very polluted city and steer it toward a new future. Skies, city grounds, and parks that were filthy (and unsafe) are now clean, green, and safe again. Dilapidated neighborhoods became a great stock of historic buildings that produced a new, eclectic vibrancy. Robert Rubenstein, the executive director of the Urban Redevelopment Authority, lamented that “in the Hill District, once the home of thousands of African Americans and historic jazz places, you can still find many oversized parking lots,” but he quickly added that it is now making a comeback with new cafés, shops, and training schools. The area of the last operating steel plant to close, the LTV coke works, lost three-quarters of its population and most of its jobs but is now in the early stages of being redeveloped with homes, stores, and an eco-park that includes its old commercial district. After four decades of disinvestment, abandoned homes, gangs, drugs, and crime, the Homewood area (where the Carnegie and Frick families once had homes) has seen some home prices jump from $7,000 to $200,000, and over $50 million is being invested to redevelop some of the 1,000 vacant single-family homes and townhouses.13
The new Pittsburgh has ambitious dreams of becoming a green and smart city. City officials, university leaders, entrepreneurs, and high-tech businesses are all focused on systematically creating a quality of life that attracts top talent by making sure the atmosphere is vibrant, homes remain affordable, and “density” is high. Distances back and forth from work, home, and play must be short, and “smart” devices must work everywhere and be completely integrated. Everything has to make sense from a cost and environmental point of view. Perhaps because of Pittsburgh’s polluted past, the city’s local architects and developers keep a close watch on what is happening in other cities that are at the forefront of green technology—places such as Malmö, Sweden, and other cities in Scandinavia (see here)—while trying to avoid the pitfalls of wanna-be-green cities that pursued unrealistic solutions.
Pittsburgh’s local officials know that the city still has a long way to go, and they sometimes have to manage clashes with the brash new corporate entrants—but the optimism is palpable. “Carnegie Mellon is
to Google and the rest of the city’s tech companies what, perhaps, iron ore factories were to the steel industry in the nineteenth century,” Pittsburgh mayor Bill Peduto said in an interview.14 Or as he put it to us: “The next ten years are going to determine what the city will be like for the next century. We have a real opportunity to put Pittsburgh on the map again with 6,000 people moving into the city again this past year who want to work, live, and play together rather than sit in their cars for hours. By refocusing the job base on technology, health care, and education, we could become a global model.”15
Introduction
WELCOME TO THE BRAINBELT
The People, Places, and Practices That Are Turning Globalization on Its Head
The central idea of this book—that the revitalization of former rustbelt areas is bringing new competitiveness to the United States and Europe—developed for each of the authors from two very different starting points.
For Antoine, the thinking was sparked by comments like those he heard in conversation with David Ku, the chief financial officer of Mediatek, a leading designer of chipsets for smartphones and other products, based in Taiwan. It was the spring of 2012, and Antoine, newly free from the responsibilities of managing the multibillion-dollar investment firm he founded and built, had been traveling through Asia, discussing with senior business executives and political leaders the challenges they saw to the competitive advantage they had held for the past many years in the global marketplace. Ku, who has experience in the global financial industry in addition to his career in high-tech manufacturing, was showing Antoine around the Mediatek facility in Hsinchu City, when Antoine asked him about the global market. “You know,” Ku said, “We are facing much stronger American competition again.” Antoine asked him to elaborate. What kind of competition? From whom? Ku, who earned his MBA from the University of Illinois and understands the American market, immediately mentioned Qualcomm, the tech giant based in San Diego, as a particular threat. “Their R&D is so advanced, so far ahead of ours,” Ku explained. Antoine saw that Ku was genuinely concerned about the situation. “They can easily squeeze us,” said Ku and then changed the subject. Antoine, who coined the term “emerging markets” in 1981 when he was at the International Finance Corporation (IFC), the private-sector-oriented affiliate of the World Bank, and had spent much of his career focused on Asia, had not heard an Asian businessperson complain about being squeezed by American competitors for at least two decades. Was Mediatek an anomaly? Or was this an early signal of an important trend? Could it be that developed countries had created an advantage in design and manufacturing that worried the low-cost producers in Asia?
For Fred, thinking along these lines was also inspired by travels. Recently retired from his position as editor in chief of Het Financieele Dagblad, the major financial newspaper in Holland, Fred was journeying through Mexico, Indonesia, South Korea, and Turkey (the MIST countries), talking with businesspeople, politicians, researchers, and entrepreneurs about their views on where global business was headed. He heard several comments that were similar to those made to Antoine by David Ku. The low-cost labor advantage that companies in the MIST countries had leveraged for the past couple of decades to gain economic growth was losing power, Fred was told. Making things cheap to gain an edge over high-cost Western companies just wasn’t cutting it anymore. The days of the low-cost advantage were essentially over.
In addition, Fred saw that the way companies were working was changing. When in 2011 the city of Eindhoven, Holland, was selected as the smartest region in the world by the Intelligent Community Forum (ICF), an American think tank that makes the award annually, Fred was reminded of a conversation he had had with Gerard Kleisterlee, the former CEO of Philips, some years earlier. Kleisterlee had explained how the electronics giant had transformed its once-thriving research lab in Eindhoven—whose reputation rivaled that of Bell Labs in the United States—into an open-innovation campus, where researchers from different institutions and companies could collaborate. Certainly, this kind of activity must have contributed to Eindhoven’s recognition as a center of innovation, one of the smartest places on earth?
These comments and observations contradicted the Western conventional wisdom that had prevailed for some time. Just a few years earlier, at a conference in the Netherlands, for example, Rem Koolhaas, the renowned architect and astute observer of global business, had provoked his audience by showing a map of the world, redrawn with a shrunken United States at the global margin and the emerging countries dominating the center. At the time, financial analysts were often heard lamenting that Europe would soon become the “museum of the world.”
Travels completed for the time being, Antoine returned to the Washington, DC, area where he lives, and Fred went home to Amsterdam. But, in our separate ways, intrigued by what we had heard and observed, we began to explore these ideas further. Was it possible that a new form of manufacturing, this time based on sophisticated R&D, was having some kind of renaissance in the developed countries? Could it be true that cheap labor was no longer the advantage for the developing countries it had once been? Was there a new spurt in the processes of innovation and product development?
To learn more, Fred went on further travels, primarily in Europe, and what most captured his interest was what he heard from chief technology officers about process. Increasingly, they said, they were working in collaboration with multiple partners, often universities and even government agencies, because their companies could no longer bear the cost of research alone and because they needed specific expertise they did not have, or did not want to establish, in house. Antoine hit the road again, too, visiting research labs and factories, primarily in the United States (after a long career spent traveling in Asia and Latin America), and became intrigued by the changes he saw, particularly the reinvented role of research in product creation, as well as the use of advanced production methods such as robotics and 3D printing.
In January 2013, while we were developing these ideas separately, we were introduced by a mutual friend, and a Skype chat led to a meeting and several days of conversation. Although we both believed (and still do) that the global economy’s center of gravity was shifting toward emerging markets, we also agreed that competitiveness from companies in the United States and Europe was on the rise again after many years of being on the defensive. Exactly how or why, we weren’t completely sure, but we had a theory: after several decades of a near-obsession with making things as cheap as possible, the next decades would focus on making things as smart as possible. Smart innovation, rather than cheap labor, would be the key competitive edge, and leading tech companies such as Apple and Google offered proof.
Our thinking continued to evolve. Fred wrote an essay analyzing what he had learned about Eindhoven. Antoine shared the article with Bruce Katz, of the Metropolitan Policy Program of the Brookings Institution, and Bruce decided to visit Eindhoven with Fred to see what was going on. He was impressed but not completely surprised. He suggested that Eindhoven had unique features, such as the revolutionary developments in the supply chain, but that similar places existed in the United States, such as Albany, New York, and Akron, Ohio, and many others.
The evidence accumulated. General Electric had sited a new production facility in the United States rather than in a low-cost labor location, which is what the company would have done a decade earlier.1 And this was not any factory; it was for the production of next-generation aircraft engines, a central element of GE’s business. This was a compelling model, proof that major American companies were bringing some of their most important manufacturing operations back to the United States. What struck us in particular was the exact location of the new facility: a town called Batesville, Mississippi. Why there? According to Jeffrey Immelt, CEO of GE, the reason was that Batesville was right next door to Mississippi State University, whose researchers had amassed tremendous knowledge of new materials of the kind that would be needed in the creation of the next generation of superlight,
ultraquiet, extremely fuel-efficient aircraft engines. And that’s exactly what happened. The iconic global corporation worked closely with the little-known educational institution, with results so positive that Immelt vowed to locate more GE production sites within spitting distance of other hotbeds of cutting-edge research.
If GE, one of the most professionally managed corporations in the world, was bringing research, development, and manufacturing activities to the hinterlands of the United States, we had to take notice. Neither Batesville nor Eindhoven was likely to make any list of the world’s most successful innovation hubs, which has long been topped by the amazing concentrations of brainpower in Silicon Valley, California, and Cambridge, Massachusetts. Nor would they yet be mentioned in the same breath as advanced manufacturing centers such as Stuttgart, Germany. But we sensed they might eventually make the list—sooner rather than later—and that they were bellwethers of a hugely important phenomenon that was arising in similar cities and regions of the United States and Europe: areas that, in the United States, we call rustbelts, former industrial citadels that had been hit hard by offshoring, suffered decline, but were now coming back stronger than ever. Although the term “rustbelt” is not a familiar one to Europeans, the profile of the regions there was similar. These areas had been transforming themselves from also-rans into centers of innovation and smart manufacturing that we called “brainbelts.”
The Smartest Places on Earth Page 2