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STRATEGY

A Look at the Losers

The standouts on this year's list are the cities that know how to attract entrepreneurs.
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Every list must have a bottom, and so it is with ours too. For the most part, the nether regions today parallel previous years, although 2005's natural disasters -- particularly Hurricane Katrina -- clearly explain the precipitous drop of both No. 386 New Orleans and No. 388 Gulfport-Biloxi, Miss., which suffered setbacks of more than 100 places apiece based on the current survey of 393 metro areas.

No such excuses can be made for other poor performers, including large cities such as No. 389 Baltimore and No. 392 Philadelphia. Each city, oddly enough, has earned itself some recognition for enjoying urban comebacks. But hype cannot obscure the reality of stagnant job growth and demographic decline, at a time when the nation as a whole is experiencing rather robust employment and demographic vitality.

In Baltimore, a much-ballyhooed movement of educated Washington commuters and the charms of Mayor Martin O'Malley have generated a lot of positive buzz in the national and local media. Yet, the harsh realities of Baltimore remain: one of the nation's highest homicide rates, now apparently on the rise again, stagnant overall job growth, a continuing precipitous decline in traditional standbys like manufacturing (down 23.7% since 2002) and financial services (down 14.6%) should provide a sobering counterpoint.

Like Baltimore, No. 392 Philadelphia has been winning some nice buzz, particularly for its improving Center City. Here, it has displaced New York artists rather than D.C. commuters. Reality, as in Baltimore, is that Center City may be more of a Potemkin Village than a harbinger of resurgence. The economy is flat and all high-end sectors, from business and financial services to information and manufacturing, have been hemorrhaging jobs since 2002. More people continue to leave rather than stay, some of them perhaps headed to the surrounding New Jersey suburbs (No. 65) where job growth remains strong.

Fred Siegel, an urban historian at Cooper Union in New York, traces these poor showings to long-term historical factors, including a history of inept government, stubbornly high crime rates, a decayed industrial base, and lack of dynamic new business growth. This is in stark contrast with surrounding areas, such as the suburbs just north of Philadelphia and the booming areas around Washington, D.C.

On a statewide basis, Michigan is kind of a Florida in reverse. Michigan Gov. Jennifer Granholm has tried to create some buzz of her own, with her "cool cities" campaign for Michigan's beleaguered cities, which account for three of the bottom 10 on our rankings (No. 384 Bay City and No. 388 Holland-Grand Haven). Longtime Comerica Bank economist David Littman believes the whole state is about to "implode" as General Motors and Ford gear up for expanded job cutbacks. By 2010, he estimates, this once-prosperous state could have a per capita income equal to Mississippi. Long-time auto town Flint epitomizes the trend, with a more than 18% loss in manufacturing jobs since 2002.

Other areas have been even more directly walloped by the continuing decline of the auto industry, particularly General Motors and Ford. Six of the bottom 10 metros are located in the Midwest industrial belt. Patrick Barkey, director of economic and political studies at Ball State University, suggests that cities like last place Muncie, Ind. (No. 393), have not found any sizable industry to replace their long diminishing manufacturing sector.

"A lot of our towns are not showing that they are viable in the information age," Barkey points out.

Is There Hope at the Bottom of the List?

Yet the die may not yet be cast. "Prosperity," noted the Greek historian Herodotus, "does not abide long in one place." Some cities now at the top of our list -- such as Bellingham -- were once seen as declining due to the collapse of their traditional resource industries, such as timber and fishing.

Places can reinvent themselves and some -- such as No. 354 Kalamazoo, Mich. -- are making game attempts to do so. "It's still Depression era around here," admits Ron Kitchens, head of the Southwest Michigan Now, a local economic development group. Kalamazoo, he reports, is investing heavily in new startups in information, life sciences, services, and other growth industries as well as offering scholarships to local students to stay in the area.

Vegas-like growth may be not be in the cards, and even a middling ranking may be off in the distant future. But Kitchens claims progress in the form of the town's abandoned old GM plant, now occupied by a dozen different smaller entrepreneurial firms. In this sense, he is trying to replicate the same thing that is working in places like Bellingham to Boca Raton -- starting with the people first.

"We can make a place like this turn around -- it's getting smart people and creating opportunities for them," Kitchens suggests. "What you need is for the community to support entrepreneurs so they can create those opportunities in the first place."

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