Hot Spots

INC.'s list of the 50 fastest-growing U.S. cities

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The United States in 1987 is in the midst of a dramatic deconcentration in the structure of its economy. Much has already been written about the shrinking of the nation's big corporations and the rising importance of small and midsize companies in generating jobs and economic growth. And what is true of the economy is now reflected in the political economy as well -- in the declining importance of the largest cities in favor of regional metropolitan areas and small cities in the newly prosperous South and West.

To plot more precisely the direction of this trend and better calculate the slope of its curve, INC. ranked every metropolitan area in the United States according to three growth criteria: significant new start-up companies as a percentage of the business census; percentage of start-ups experiencing high growth; and overall growth in employment. The lists of the top 50 cities -- along with the 20 cities in the cellar -- appear on the following pages.

What conclusions can reasonably be drawn from these rankings?

Even a cursory look at the cities that are hot -- and those that are not -- confirms that the historic shift from Rust Belt to Sun Belt has not yet run its course. The cities at the bottom of our list comprise something of an atlas of industrial America, once-proud capitals of coal and ore, auto and steel. By contrast, many of the cities at the top of the list were mere economic backwaters a generation ago peddling cheap labor, cheap land, and cheap government. As a result of their success in attracting big companies and growing their own small ones, these same cities today sell themselves on the basis of beautiful parks, big airports, and well-endowed universities.

The obvious lesson in all this is that it is easier for a city to come from nowhere than to reverse a steep decline. Because smaller companies cluster in the service and retail sectors, it is difficult to start and grow them when corporate customers in town are closing down operations and thousands of potential retail customers are losing their jobs. "For older cities with heavy manufacturing bases, it's going to be a much harder transition to a more entrepreneurial economy," explains John D. Kasarda, an urbanstudies expert at the University of North Carolina at Chapel Hill.

But it also is clear from our rankings that cities dominated by a single industry or company -- even one that is robust -- are not conducive to entrepreneurship and small-business growth. In these places, the big companies tend to crowd out the smaller ones for capital, employees, land, and attention. "Sometimes cities stagnate because the big companies don't move out," explains Jane Jacobs, a noted writer on cities. "They create a company-town atmosphere. They become too self-sufficient. . . . If Eastman Kodak, for instance, had moved out of Rochester, N.Y., that city could have become one of the great science cities of the world."

In addition to having a diverse and healthy economic base, the hot cities share two other characteristics. One is a significant government presence: among cities at the top of our list, it is common to have at least a quarter of their working population employed in the public sector. The other is quality. As David Birch points out on page 53, the thriving cities are the ones that have taken pains to improve the quality of their workers, their lifestyles, and their public institutions.

There is no magic formula for urban economic growth, no single model for the entrepreneurial city. But from our list of top cities we have identified six broad groupings:

* Bureaucrats and Brains. The rhyming duo of Austin (#1) and Boston (#25) is the premier example of what happens when government headquarters and world-class research universities are located in the same place. In the Massachusetts version, the universities are private; in Texas, it is public. In each case, the university payroll is substantial and the high-tech spin-off is the envy of the nation. And should high tech turn soft, as it has recently in Austin, the capital cities in this category rely on government to cushion the blow -- not through subsidies, but through steady, high-paying jobs that support a thriving retail sector. Raleigh-Durham, N.C. (#7), with its Research Triangle Park, fits in this category, followed less dramatically by Ohio's Columbus (#40) and Wisconsin's Madison (#48). Unlike those cities, Colorado Springs, Col. (#27), is not a state capital, but it makes up for state spending with the U.S. Air Force Academy, the U.S. Space Command, the Air Force Space Command, and the North American Aerospace Defense Command.

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