Why some cities boom while others languish

Remember when you could tell how a city was doing by asking a knowledgeable question or two? In Cleveland you inquired about heavy-industry output, in Hartford about insurance. If airplane production was booming, so was Seattle.

Today, metropolitan prosperity seems to swell and recede for a hundred different reasons. Drive around Milwaukee, for example, and check out the shuttered, crumbling Allis-Chalmers Corp. complex, one of many moribund factories that once employed thousands of industrial workers. Then try to figure out why the region's unemployment rate is a tight 4%, and why the city's downtown is booming. Or drive around greater Houston, as staff writer Leslie Brokaw did not long ago (see "The Woodlands, Tex.," [Article link]). Oil isn't going anywhere -- but the Houston metro area is coming back fast.

All of which leads to a suggestion: scrutinize INC.'s 1990 ranking of entrepreneurial hot spots carefully. The list itself is simple enough, indexing metropolitan regions by job growth, business starts, and proportion of high-growth companies. But we think you'll find some surprises, both in the rankings themselves and in what our writers discovered as they set out to places as disparate as Las Vegas and northern New Jersey in search of the many new reasons for economic vitality.

Regional growth, after all, is a subject too important to be left to politicians and booster clubs. How your city is faring has a direct impact on how your business fares. And if you need to know where to find new customers, or new employees, or a site for a new branch -- well, then, you'll need a mental map of America, color-coded for growth. The trick is to keep it up to date, which means understanding the distinctive features of 1990s-style economic development.

One phenomenon is so pervasive we've devoted a whole section to it: see David L. Birch's "Here Comes the Neighborhood" [ [Article link]], and the accompanying firsthand reports. If you don't mind an awkward phrase, call it the localization of growth.

Once, a metropolitan area rose and fell pretty much as a unit. Today, by contrast, you can find pockets of hothouse-style growth in and around cities that are otherwise languishing. Take Philadelphia: the region as a whole is a mediocre #88 on this year's ranking, down from an almost-as-mediocre #74 last year. But don't talk slow growth to the people and companies in the Route 202 corridor just west of the city; out there, roads that were country lanes only a few years ago are straining under the burden of rush-hour traffic from dozens of new office and industrial parks.

Phenomenon two: growth now depends on the role a city plays in the world marketplace, not just in the national economy. International trade was always important to big manufacturing centers and cities with deep-water ports. But the emerging global village has churned up a dozen new niches for enterprising metro areas.

Examples? The Battle Creek-Kalamazoo region in Michigan jumped from #130 last year to #57 this year, partly on the strength of $250 million pumped into the area by Japanese auto-parts and cable-parts companies. El Paso (#35) has capitalized on the so-called maquiladora program, the production-sharing arrangement between U.S. and Mexican factories -- and is transforming itself from a sleepy, low-skill factory town into a sophisticated center of high-value manufacturing. And little Erie, Pa., taking advantage of newly liberalized trade with Canada, has climbed from #125 last year to #58 this year.

More and more cities are learning just how valuable a complex of colleges and universities can be to economic development. You expect to find technology-oriented growth around such higher-education centers as Boston and San Francisco. But look at Lincoln, Nebr., #8, home of a 20,000-student university, or Tallahassee, Fla., which jumped from #61 to #4, thanks in part to growing academic institutions such as Florida State University (28,000 students, up 5,000 from a few years ago) and Florida A&M University (which has seen a 36% increase in enrollment since 1984). "There's a good work force here," says a spokesman for General Dynamics Electronic Division, which recently decided to locate a major manufacturing facility in Tallahassee. "And there's the added incentive of state-funded employment training at the colleges and universities."

Even Birmingham, Ala., #73, whose fortunes once followed the steel industry's, has learned the education lesson. "The University of Alabama at Birmingham is now the city's largest employer," points out Lisa Roberts of the city's economic-development office. "And its medical research has led to spin-offs such as the Southern Research Institute." It has also made the city an attractive location for such companies as Nidek Medical Products Inc., a growing $3-million manufacturer of oxygen concentrators for home health care. "We use the Southern Research Institute's testing facilities for our new health-care ideas to see if they would be sound products," says Nidek president Anand Chitlangia.

Finally, there's a new twist emerging on the old model of the one-industry town. In the past, when you thought of Akron's tires or Pittsburgh's steel, the names of a few big companies came to mind. The cities prospered or declined with the prospects of a couple of corporations. Today, cities are developing industrial specialties without depending on two or three giant employers.

The classic case is California's Silicon Valley. Large employers such as Apple Computer Inc. and Intel Corp. have, like most big companies, been bounced around by the vagaries of the high-tech marketplace. But the San Jose metropolitan area remains near the top of our list because it's still an unparalleled incubator for smaller technology companies. You can see a similar phenomenon, albeit on a more modest scale, in cities as far away as Sioux Falls, S. Dak., and Charlotte, N.C. Sioux Falls (#20) claims to have more retail space per capita than any other city in America. Its 93-acre Empire Mall already includes 180 stores, and more are on the way, along with a $3-million expansion of the nearby Encore Hotel, designed to accommodate overnight shoppers. Charlotte's booming growth (#11 on this year's list, up from #29 a year ago) can be traced to its emergence as a banking center and a hub for product distribution, with many different companies in each industry.

As for Milwaukee, its sorry ranking (#156) on this year's metro list reflects above all a slow rate of net employment growth -- and it's true that the city hasn't yet come back from the decline of heavy-industry giants such as Allis-Chalmers. However, Milwaukee neither looks nor feels like an economic basket case. The old Schlitz brewery, abandoned when The Stroh Brewery Co. bought out the beer that once made Milwaukee famous, is now a thriving office complex. Out in suburban Waukesha County -- the localization of growth, again -- companies are proliferating so fast there's a chronic labor shortage (see "The Economic Microscope," November 1989, [Article link]) Even the industrial suburb of West Allis isn't doing so bad. Although it lost more than 8,000 jobs from Allis-Chalmers and other big manufacturers in the 1980s, it gained several thousand other jobs, mainly from newer and smaller companies. Watch for the Milwaukee region to climb on future metro rankings.

The lesson? Economic growth is where you find it. But you can find it, these days, in many different places -- and for many different reasons.

Research assistance was provided by Lisa D. Royal.


Our fourth annual report on metropolitan areas is based on three factors: job generation, rate of significant new business start-ups, and the percentage of young companies enjoying high growth rates. For each factor, each metropolitan area was assigned a score from 1 to 33.33, reflecting its relative standing among cities in the United States. The overall rank of a city was based on the sum of the three scores.

Metropolitan areas were defined as counties or groups of counties closely related by commuting patterns. In general, a densely settled suburban community was grouped with an urban county if 15% of its residents reported working in the city. To be considered a metropolitan area, each county or group of counties must have at least 100,000 jobs or 200,000 people.

This year, to make our report more accurately reflect current conditions, we changed the period of time covered. So the data reflect the change from January 1987 to July 1989, a two-and-one-half-year period, rather than the four and a half years in previous reports.

The rate of significant business births was derived by dividing the total number of enterprises in an area into the number founded since January 1987 that had 10 or more employees by July 1989. The number of high-growth companies was figured as a percentage of all companies founded between January 1981 and January 1985. For each company, an index was calculated by multiplying its absolute growth in employment between January 1987 and July 1989 by its percentage of employment growth. Companies with an index of 20 or higher were classified as high growth. Employment figures measure the change in private nonagricultural and civilian public-sector employment between January 1987 and July 1989.

Data on companies were compiled by Cognetics Inc., a Cambridge, Mass., consulting firm. Job data were supplied by the U.S. Bureau of Labor Statistics and Woods & Poole Economics Inc., a research firm in Washington, D.C.

The ranking was prepared by special projects editor Sara Baer-Sinnott.


1990 Rank/City, State/1989 Rank

1. Las Vegas, NV (6)

2. Washington, DC (5)

3. Orlando, FL (2)

4. Tallahassee, FL (61)

5. San Jose, CA (13)

6. Atlanta, GA (7)

7. Charleston, SC (19)

8. Lincoln, NB (72)

9. Raleigh-Durham, NC (4)

10. Anaheim, CA (8)

11. Charlotte, NC (29)

12. Hickory, NC (76)

13. Wilmington-Jacksonville, NC (36)

14. Ventura, CA (27)

15. Nashville, TN (15)

16. San Diego, CA (11)

17. Chattanooga, TN (96)

18. Greenville-Spartanburg, SC (84)

19. Fort Myers, FL (14)

20. Sioux Falls, SD (92)

21. Stockton-Modesto, CA (67)

22. Reno, NV (31)

23. Baltimore, MD (35)

24. Jackson, MS (73)

25. Lancaster, PA (51)

26. Fort Pierce, FL (21)

27. Columbus, OH (37)

28. Jacksonville, FL (16)

29. Lexington, KY (24)

30. Norfolk-Portsmouth, VA (18)

31. Richmond, VA (30)

32. Honolulu, HI (93)

33. Atlantic City, NJ (46)

34. Tampa-St. Petersburg, FL (33)

35. El Paso, TX (40)

36. Huntsville, AL (22)

37. West Palm Beach, FL (3)

38. Melbourne-Titusville, FL (56)

39. Fort Lauderdale, FL (NR)

40. Seattle, WA (43)

41. Portsmouth, NH (9)

42. Panama City-Fort Walton Beach, FL (23)

43. Reading, PA (153)

44. Grand Rapids, MI (58)

45. Riverside-San Bernardino, CA (12)

46. Madison, WI (75)

47. Columbia, SC (20)

48. Wilmington, DE (42)

49. Houston-Galveston, TX (126)

50. Mobile, AL (101)

51. Miami, FL (63)

52. Sacramento, CA (49)

53. Asheville, NC (117)

54. Los Angeles, CA (59)

55. Indianapolis, IN (32)

56. Greensboro-Winston-Salem, NC (41)

57. Battle Creek-Kalamazoo, MI (130)

58. Erie, PA (125)

59. Green Bay, WI (100)

60. Savannah, GA (65)

61. Des Moines, IA (124)

62. Columbus, GA (158)

63. Dallas-Fort Worth, TX (26)

64. Louisville, KY (71)

65. Santa Barbara, CA (109)

66. Memphis, TN (57)

67. Toledo, OH (99)

68. Gainesville, FL (38)

69. Portland, ME (39)

70. Minneapolis-St.Paul, MN (50)

71. Anniston-Gadsden, AL (142)

72. York, PA (78)

73. Birmingham, AL (54)

74. Portland, OR (102)

75. Montgomery, AL (47)

76. Metro New York (NJ), NJ (69)

77. San Francisco-Oakland, CA (88)

78. Sarasota, FL (34)

79. Phoenix, AZ (10)

80. Knoxville, TN (62)

81. Daytona Beach, FL (80)

82. Boise, ID (95)

83. Baton Rouge, LA (122)

84. Salt Lake City, UT (79)

85. Dayton, OH (107)

86. Harrisburg, PA (81)

87. Manchester-Nashua, NH (1)

88. Philadelphia, PA (74)

89. Peoria, IL (172)

90. Lima, OH (135)

91. Salem, OR (147)

92. South Bend, IN (44)

93. Rochester, MN (165)

94. Burlington-Montpelier, VT (28)

95. Albuquerque, NM (60)

96. Allentown, PA (148)

97. Fayetteville, NC (141)

98. Tucson, AZ (25)

99. Roanoke, VA (104)

100. Eugene, OR (120)

101. Lafayette, LA (188)

102. Boston, MA (53)

103. Johnson City-Kingsport, TN (138)

104. Denver-Boulder, CO (94)

105. Pittsfield, MA (145)

106. Chicago, IL (119)

107. Little Rock, AR (137)

108. Fort Wayne, IN (45)

109. New York, NY (108)

110. Cincinnati, OH (90)

111. Pittsburgh, PA (139)

112. Syracuse, NY (98)

113. Rochester, NY (83)

114. Springfield, MO (77)

115. Detroit, MI (89)

116. Binghamton-Elmira, NY (116)

117. Omaha, NB (103)

118. Bridgeport-Stamford, CT (66)

119. Bakersfield, CA (151)

120. Pensacola, FL (48)

121. Cleveland-Akron, OH (134)

122. Lansing, MI (113)

123. Providence, RI (118)

124. San Antonio, TX (55)

125. Lakeland-Winter Haven, FL (87)

126. Evansville, IN (159)

127. Augusta, GA (97)

128. Worcester, MA (64)

129. Brownsville, TX (168)

130. Buffalo, NY (140)

131. Fargo, ND (115)

132. Huntington, WV (161)

133. Kansas City, MO (86)

134. St. Louis, MO (111)

135. Fort Smith-Fayetteville, AR (52)

136. Tulsa, OK (169)

137. New Haven, CT (82)

138. Lynchburg, VA (182)

139. Anderson-Muncie, IN (180)

140. Topeka-Lawrence, KS (143)

141. Biloxi, MS (127)

142. Albany, NY (91)

143. Wichita, KS (68)

144. Charleston, WV (167)

145. New Orleans, LA (175)

146. Long Island, NY (106)

147. Fresno, CA (129)

148. Macon, GA (105)

149. Bloomington-Champaign, IL (136)

150. Scranton-Wilkes Barre, PA (155)

151. Poughkeepsie, NY (112)

152. Odessa-Midland, TX (191)

153. Austin, TX (17)

154. Johnstown-Altoona, PA (160)

155. Monterey, CA (70)

156. Milwaukee, WI (121)

157. Hartford, CT (85)

158. Spokane, WA (149)

159. Lubbock, TX (181)

160. Metro New York (NY), NY (114)

161. Williamsport-State College, PA (146)

162. Longview, TX (170)

163. Youngstown, OH (131)

164. Oklahoma City, OK (184)

165. New Bedford-Fall River, MA (150)

166. New London, CT (133)

167. Cedar Rapids, IA (132)

168. Canton, OH (163)

169. Utica-Rome, NY (173)

170. Waco-Killeen, TX (123)

171. Saginaw-Bay City, MI (164)

172. Rockford, IL (128)

173. Lafayette, IN (171)

174. Anchorage, AK (174)

175. Corpus Christi, TX (185)

176. Springfield, MA (144)

177. Fort Collins, CO (157)

178. Duluth, MN (179)

179. Beaumont, TX (183)

180. Flint, MI (154)

181. Yakima-Richland, WA (186)

182. Visalia, CA (156)

183. Colorado Springs, CO (110)

184. Amarillo, TX (187)

185. Shreveport, LA (189)

186. Springfield, IL (166)

187. Davenport-Rock Island, IL (177)

188. Monroe, LA (178)

189. Tacoma, WA (152)

190. Terre Haute, IN (162)

191. Wichita Falls, TX (176)

192. Wheeling, WV (190)


Most Fast-Growth Companies

As percentage of all young companies

1. Lincoln, Nebr.

2. Washington, D.C.

3. Sioux Falls, S. Dak., and Reading, Pa. (tie)

Source: Cognetics Inc., Cambridge, Mass.

Most Businesses Starts

As percentage of all young companies

1. Las Vegas, Nev.

2. Orlando, Fla.

3. Charleston, S.C.

Source: Cognetics Inc., Cambridge, Mass.

Most New Jobs

As percentage of 1987 employment

1. Atlantic City, N.J.

2. Las Vegas, Nev.

3. Fort Pierce, Fla.

Source: U.S. BLS and Woods & Poole Economics, Washington, D.C.



The one Rustbelt city that just won't stop growing

Think boomtown. Think growth. Think . . . Central Ohio? If you didn't, think again. In the four years INC. has compiled its report on fast-growing cities, Columbus has been the only midwestern city to place in the top 50 each year. This year, Columbus is the top-ranked city in the industrial Midwest.

What's the secret? Largely the fact that Columbus is in the Rustbelt, but not of it. Because it's a state capital, about one worker in six is employed by state or local government -- about the same as work in manufacturing. Of the city's top five employers, four are in the public sector (the state, Ohio State University, Columbus public schools, and the city of Columbus); the fifth is an insurance company. In business, the city excels in banking, insurance, distribution, and fast food. Columbus's boosters like to boast that the city's diversified economy is almost recession-proof. Maybe they're right: it's the only major city in the northeast quadrant of the United States to experience sustained growth since 1970.

Then there's that buzzword, quality of life. The city is clean, with good schools, reasonably priced housing, and a college-town atmosphere that helps attract and retain young people. Although it has surpassed Cleveland as Ohio's largest city, Columbus still has a certain small-town feel. "There's a great deal of civic pride in Columbus," says Larry Clark, co-owner of a catering business, Made from Scratch. "People really come after you to get involved."

Such sentiments are common among business boosters everywhere -- but in Columbus, everyone seems to agree. Across the nation, says James Challenger, president of the outplacement firm Challenger, Gray & Christmas Inc., some 35% to 40% of his company's clients ended up going to a new city to get a job last year. Only about 1% will agree to leave Columbus.

Columbus ranks high in the section of INC.'s index that counts fast-growth companies. That's only fitting: the city is home to The Limited, Wendy's, CompuServe, and other entrepreneurial stars. But it has also attracted large corporations to the area, notably the immigrant Honda of America plant in nearby Marysville.

Drawbacks? A few. While Chamber of Commerce execs will say that both Battelle Memorial Institute and Ohio State spin off high-tech firms, they can name only one offhand. That may not be coincidence. "I would never move a high-tech company to Columbus," says James Ebright, whose Software Results Corp. nevertheless made the INC. 500 in 1983 and '84. "The infrastructure isn't really there." Then, too, Columbus lacks big-city attractions such as major-league sports teams.

All in all, there's probably no better summary of the city's strength and weaknesses than this one from a growth-company CEO who has lived there since childhood. "Columbus is a nice place to live," he says. "But you wouldn't want to visit there." -- Martha E. Mangelsdorf


Gambling makes the desert bloom -- and so do a host of new businesses

Poor Dennis Stein. Anywhere else he'd be a hero for his role in attracting 56 new companies with roughly 2,000 new jobs in a single year. In Las Vegas, though, Stein's Nevada Development Authority operates in a shadow. On the Strip, Golden Nugget Corp. builds The Mirage, a 3,000-room hotel-casino with volcano and tropical rain forest, adding 6,000 jobs to the market in a single month. Circus Circus's 4,000-room Excalibur hotel-casino will employ 5,000 when it opens, probably in June. "It's hard to compete with that," complains Gerald Sandstrom, who works for Stein.

Gambling is to Las Vegas as government is to Washington, D.C.: whatever secret pride they feel, most people living in either place say that their town really isn't so different. "It's not the glitter gulch that everyone thinks it is," insists Nevada governor Bob Miller. "You see people down on the Strip acting strange? Those are the visitors, not the residents." Says Ken Hix, a Colorado contractor who came to town to start Mirimar Systems Inc., a company that assembles and sells lightweight architectural mirrors: "Once you get away from the Strip, this is just like any other town."

Not exactly any other town. Top-ranked Las Vegas -- and surrounding Clark County -- is exploding. Every month between 3,000 and 5,000 people move there. Big companies such as Levi Strauss and T. J. Maxx are establishing distribution centers in Clark County, so they can service the West Coast without paying West Coast prices for land, construction, and help. Following the same theory, Peachtree Doors Inc. has set up manufacturing and assembly operations there, while Ocean Spray Cranberry is planning on doing so. Citibank and Montgomery Ward Credit Corp., among others, have located financial service centers in Vegas to tap a labor force that has had lots of practice counting. And small companies such as Hix's are proliferating.

People concerned about the city's image -- officials, developers, and economic-development specialists -- complain about its reputation. "Quality of life is a hard sell here," says Nevada Development Authority vice-president Bill Kellar, "because people look at us through the veil of gaming." Without gaming, though, the same people concede that Las Vegas would be just one more southwestern city on a run of good luck. Gambling distinguishes Las Vegas from Phoenix and Denver, whose streaks have petered out. And gambling still accounts for more than 25% of the city's jobs, a proportion that's holding steady despite the growth in other kinds of work. "We've got an industry with virtually no competition," says John Goolsby, president of Summa Corp., a developer.

The business and government elite of Las Vegas gathered in a ballroom near the foot of The Mirage's volcano last December to hear about the prospects for 1990. The forecast, not surprisingly, was for more of the same: growth. The bad news came from Ralph Piercy, managing partner at the accounting firm of Laventhol & Horwath. "Gaming will still overshadow all that diversification we heard about this morning," he said. "We'll still be known as a one-industry town."

Poor Dennis Stein. -- Tom Richman



Even after Hurricane Hugo, a booming economy with antebellum allure

This three-century-old city came back from the war of 1861 and from the earthquake of 1886. No doubt Charleston will also recover from the hurricane of 1989.

Indeed, hardly had Hugo departed than out-of-town investors were betting that the region's pre-storm economic gains hadn't gone with the wind: four-term mayor Joseph P. Riley Jr. was breaking ground for a new $18-million hotel, even as nearby crews noisily hammered roofs back onto ravaged offices and stores. "Charleston," savored one of the participating hoteliers, "is New Orleans without the sleaze -- and you can get higher room rates."

Charleston has maintained its antebellum allure despite a fast-paced industrial revival. Today, tourism is the city's biggest private employer, outranked only by the U.S. military. City leaders managed to keep their history intact not so much through foresight as through default: for decades host to navy-base commerce (read, red-light district), Charleston had neither the funds nor the motivation to sacrifice vintage structures to high rises. The old edifices, now in the process of being revivified, were spared expansionist extinction.

Not to put the knock on the North, but Charleston's palm-treed quality of life, in which you can fish, sail, and/or play golf year round, is a major selling point. True, that's an attraction of San Diego and Miami -- except in this long-neglected region a business person can buy the same house for $180,000 that would cost five times as much in most other enterprise-hungry places. Thus the following tactic: cash out plant and home from Long Island or similarly top-valued place, set up around Charleston, and pocket millions of instant cash in the rollover. There's plenty of affordable space, a pool of right-to-work labor, and financial incentives galore.

Not that all the Trident region's gains have been another region's loss: many businesses are expanding into the area without giving up their home base. Gerry and Ron Weil own Swiss American Importing Co., a St. Louis company that has opened an 18-employee satellite operation in Charleston. The company's imported cheeses used to be trucked from New York City; now, they arrive through the deep-water Port of Charleston's three huge container facilities, bustling evidence of the region's well-managed growth. LG Industries, a paper-machinery company that will employ 30 people, is expanding its operations into the Charleston countryside (but still close to the airport) to take advantage of the enhanced tax breaks granted to rural enterprise.

In a homebred variation on economic development, Johnson & Wales University at Charleston -- a branch of the Providence-based college -- got its start in the small-business incubator that Control Data Corp. runs in the city. J&W U is an accredited institution that grants two-year associate degrees in culinary arts -- and whose graduates spill out into the area and open fine restaurants, which attract rich tourists, who spend lots of money in the shops, which order truckloads of merchandise, which encourages manufacturers. . . .

You get the idea. Charleston wasn't blown away by Hugo. -- Robert A. Mamis