6.7.10

HUMAN CAPITAL IS IMPLIED BY BUT NEED NOT IMPLY UNIVERSITY DEGREES. The Milwaukee Journal-Sentinel draws what might be the wrong inference about Milwaukee's dearth of college graduates.

The smartest cities are getting smarter. Cities like Milwaukee are being left behind.

Better-educated places enjoy higher income, less crime and enhanced levels of civic participation, economic research has found.

And the benefits don't go just to the well-educated. When the percentage of college-educated workers in an area rises, so do the wages of workers generally - even high school dropouts, researchers have found.

At a time when knowledge is the critical force driving economic prosperity, Milwaukee faces an increasing disadvantage. Person for person, the city's pool of college-educated adults ranks among the very lowest of the country's 50 biggest cities, a Journal Sentinel analysis shows. Milwaukee County fares only a little better.

Not only that, but cities that had the best-educated populations 20 years ago have increased their stock much more than have less-educated places. The result: a self-reinforcing loop that is widening the gap between the leaders and less-favored cities such as Milwaukee.

The analysis in the article makes use of Marshall's analysis of industrial districts, as well as of agglomeration economies. (Cold Spring Shops readers will get a mini-dissertation. The full dissertation is in the Cold Spring Shops research library.)

Recent economic research has found that the greatest "spillover" benefits of having lots of college-educated workers occur in relatively small, densely populated areas. After a few miles, economic blessings - such as the attraction of new businesses and higher wages for workers across the board - erode significantly, the research concludes.

By and large, that means those benefits are more likely to accrue within cities, said Stuart Rosenthal, an economist at Syracuse University and, with [Toronto's William] Strange, author of key studies on the geographic limits of spillover benefits.

Skilled workers - economists typically use education as an imperfect but measurable substitute for skill - make each other more productive, swapping ideas in an office, on a factory floor or over coffee at Starbucks.

That at least is the theory, and the conclusion of empirical studies by researchers such as Rosenthal and Strange, Edward Glaeser (Harvard), Enrico Moretti (University of California, Berkeley) and Giovanni Peri (University of California, Davis).

Not everyone agrees, but a line of thinking extending at least back to late 19th- and early 20th-century English economist Alfred Marshall argues for the concept.

It seems like common sense. Imagine how much easier it would be to learn bicycle repair working among experienced mechanics in a bike shop compared with working alone in your garage. Or how much harder it is to develop computer skills alone at home compared with spending eight hours every day in an office with colleagues who can field questions about keyboard intricacies and software quirks.

Several economists have investigated the relationship between the prevalence of degrees in the population and regional prosperity, and Richard Florida has written several scholarly books on the subject that are accessible to the inquisitive general reader. The college degree connection is relatively recent. Building additional university capacity in the wrong place is unlikely to spark the kind of development Milwaukee's government (or the government of any Rust Belt city) would like to encourage. There is, however, a pattern in Milwaukee's history that generated an industrial economy subsequent leaders allowed to deteriorate.

A prime example [of agglomeration in action] comes from local historian John Gurda. He tells how in the late 1800s a draftsman named Bruno Nordberg was working in the Walker's Point factory of Milwaukee industrialist Edward P. Allis.

Nordberg had an idea for a steam engine governor. Allis couldn't make the prototype in his factory, but it happened that across the street Henry Harnischfeger had a little machine shop.

Nordberg walked over with his idea and Harnischfeger helped him turn it into steel. The result: the founding of one of Milwaukee's industrial mainstays, the Nordberg Manufacturing Company.

Another regular visitor at Harnischfeger's shop, Gurda writes in "The Making of Milwaukee," was Christopher Levalley, who had an idea for a system of chains to replace leather belts on machinery. From that collaboration grew another major Milwaukee manufacturer, the Chain Belt Co.

Harnischfeger's small machine shop, meanwhile, also grew into an industrial giant. And Allis, founder of Allis-Chalmers Co., outdid them all.

At one time, the four firms combined employed tens of thousands of workers, thanks to the productivity that sprang from their labor and the underlying ideas of entrepreneurs such as Allis, Harnischfeger and Nordberg.

"You have this round of self-generating energy," Gurda said recently in a talk to an economic development group, " . . . and the result was a cross pollination that made the garden bloom."

A garden, as regular readers know, in which the human capital was developed in the high schools and on the shop floor, and in which industrial work was not for everyone.
Face it, you can't send Tennessee's sub-literates to Warren to work in a Chrysler plant any more. It was no accident that they went to Warren and not West Allis to work at Harnischfeger.
Much of that old industrial base is now gone. But city leaders might benefit by understanding that developing strengths is not necessarily the same thing as developing more universities.

One key, said Thomas Hefty, retired CEO of Blue Cross-Blue Shield of Wisconsin, is to play to the area's strengths and nurture existing clusters of knowledge-based industries such as medical devices. Indeed, concentrations of particular types of business tend to beget more of the same, Rosenthal said.

"Companies are heavily attracted to locations in which there is a bunch of employment in their own industry within one mile," he said.

Also critical, said Wisconsin Technology Council president Tom Still, is to strengthen the research capacity at Milwaukee's universities and the Medical College of Wisconsin.

Perhaps so. But everybody else is doing that. On the other hand, I am aware of no city that is developing a new generation of blue-collar aristocrats.

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