Pivots: A Tale of a Few Cities
How can the economic transformation of various cities inform DC's next steps?
I have lived in Washington, DC for 20 years and have seen my fair share of big things happening here. But what is happening right now is strange in that it is both existential and happening over a course of weeks and months. It reminds me of the early days of COVID, where we knew the world was undergoing significant changes, but could not know how.
We do know that the economy of the city and the DMV (DC, Maryland and Virginia) region face an unprecedented challenge given the abrupt and massive downsizing of its primary industry, the federal government. Not only does this create immediate negative economic and fiscal impacts, it also imperils one of DC’s most precious assets - its talented workforce, who, without quick engagement, could leave the region.
This newsletter is in two parts. The first looks at how DC should think about fundamental economic transformation given how other cities that have pivoted their economies away from a dominant shrinking industry. The second part takes a step back to consider how regional economic growth can come through additional population or through additional productivity, and what that means for DC.
Part I: Economic transformation in the face of a shrinking industry
The District has set an explicit goal to diversify its economy for over a decade. The efforts have found some success; the share of federal employment of DC residents continued on a slow decline from 1993 to 2018. But overall, nonfederal growth has not been enough to displace the centrality of the federal government to DC’s economy. Today, its employment, its federal related industries, its real estate, and the entire regional economy face a degree of headwinds no other major metropolitan area is facing. In other words, what the city is facing now is very different from its turnaround at the turn of the millennium (more on that below).
What does DC need to do differently to quickly and sustainably pivot from an economy that is heavily reliant on what is the rapidly shrinking industry of the federal government?
Given my work advising regional coalitions around industry cluster-based growth over the last three years, I have started to become a student of various regional economies (I delve more into some of those thought leaders in the next section). I have been looking at examples of other different regions that have pivoted or are pivoting their economies:
Pittsburgh - steel to robotics
Research Triangle in North Carolina - tobacco, textiles and furniture to biotech
New York City - post 9/11 and 2009 financial sector decline to technology and creative economy
St. Louis - manufacturing to biotech and innovation
Detroit - legacy auto to mobility innovation
Each of these places is in a different stage of its pivot and each has moved at a different speed of change. Some, like Detroit, have experienced generations of decline, while others, like Pittsburgh were able to avoid such an outcome. Here is my very brief summary of key takeaways:
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Transformation requires an understanding of existing assets. Each of the regions I looked at worked to build on its existing economic and institutional strengths, recognizing that it’s easier to pivot to something adjacent to an existing sector than it is to start a brand new sector. Detroit moved from legacy auto to next-generation mobility, while Saint Louis leaders recognized existing assets in plant sciences and life sciences, thereby creating what became BioSTL. In both cases those sparks ended up supporting broader innovation and entrepreneurship ecosystems.
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Leverage universities as economic anchors. Higher education partnerships were central to long-term transformation in every single location. State university systems are important tools, but St. Louis’s Cortex provides an example where a group of universities, only one of which was public, invested significantly early on to make it happen. New York City, perhaps in a way only New York City could, attracted Cornell Tech to Roosevelt Island to anchor innovation there.
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Vision, leadership, and broad buy-in is key to both moving quickly and continuing over the long-term. Retooling economies requires keeping a broad coalition of anchors, businesspeople, philanthropy, civic leaders, and politicians together and motivated over many years. This is important to ensure the efforts last longer than any individual political moment. It also helps move forward with bold and proactive actions. Organizations like NCBiotech and BioSTL can help institutionalize collaboration and coordination while attracting more capital by reducing the risk of failure.
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Focus the effort in a physical area. I am not sure if Research Triangle Park, started in 1959, was the first “innovation district”, but it certainly looms large, along with MIT’s more recent Kendall Square development in Cambridge, MA.1 While not many places have the world’s top engineering school next to underutilized former industrial land, there are plenty of other examples, including Cortex and the more recent Michigan Central Innovation District in Detroit.
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Philanthropy and other non-government funding is an important catalyst to drive bigger public and private investment. This type of funding is often needed to support the early work, in which public and private capital may be less willing to make a big bet. Pittsburgh’s philanthropies and St. Louis’s universities came together to align support around investment in efforts that aligned with the major economic pivot.
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Create alignment with the workforce training ecosystem. Ensuring workforce stakeholders are at the table is critical for making sure a pivot is not only successful by providing needed labor but also equitable by supporting current residents. North Carolina not only invested in its state research universities, but it also invested in its community college and workforce system to retrain workers for aligned jobs in pharmaceutical manufacturing.
Part II: What does local growth look like?
As I was putting together these studies and takeaways for DC, a colleague shared that in the mid-aughts she wrote a paper about Pittsburgh’s economic success. Her advisor, the late Alice Rivlin, opined that Pittsburgh wasn’t on a trajectory for economic success because its population was not growing. Rivlin was a giant of economics and public policy who looms large over DC for her successful efforts to help turn it around during its economic and fiscal downtown in the 1990s. In the story of DC’s turnaround, she set a vision, then adopted by Mayor Anthony Williams, of growing DC’s population by 100,000 residents. That growth—and then some—played a major role in DC’s economic resurgence over the last 25 years. Rivlin’s comment spurred my thinking about what economic growth that isn’t dependent on population growth looks like.
Nations can grow their economies through population growth or productivity increases (or geographic expansion…but let’s not go there now). These are the same factors for regional economies. In the urban policy world, we don’t often isolate productivity-based local economic growth, or what I think of as vibrant growth, from population growth.
After the 2009 recession, a series of researchers wrote about the importance of building vibrant and thriving economies, not just relying on population growth, and they looked at many of the places I explored above. In Triumph of the City, Ed Glaeser looked at places with growing and shrinking populations and found keys to long-term success included educational attainment, a regulatory infrastructure that encouraged entrepreneurship, and building more housing for growing places while reducing housing in shrinking places.2
Bruce Katz and Jennifer Bradley argued in The Metropolitan Revolution that cities must move beyond traditional economic growth strategies (chasing jobs and GDP increases) and instead cultivate vibrancy through innovation and place-based investment. Katz continues to develop this approach with Jeremy Nowak in The New Localism.
While these authors set the theoretical seeds for distinguishing between vibrant economies and growing populations, is there a way to see what this kind of vibrant growth looks like in the data? Fortunately, Pittsburgh, the city of Rivlin’s pessimism, stands as a model.
We can compare two places highlighted above, both of which have been at the work of transformation out of a declining industry for decades: Pittsburgh, Pennsylvania and Research Triangle in North Carolina. I looked at Allegheny County for Pittsburgh and Cary, Durham, and Wake Counties for Research Triangle. I added two points of reference: DC and Lake County, Indiana, home to Gary, which is a place that has yet to discover its next-generation economy and has had generations of stagnant population.3
Starting with population change between 1969 and 2023, we see a tale of very different places, with Research Triangle on a high growth pace and Allegheny County with a slow decline until the mid aughts (around the time of Rivlin’s comment) when it stabilizes. DC saw a steady decline starting in the 1950 until 2000, when it starts steady (but modest compared to Research Triangle) population growth. Lake County has a consistently stagnant population.
Source: Bureau of Economic Analysis; “County and MSA personal income summary: personal income, population, per capita personal income”
While Research Triangle and Pittsburgh show two different tales of population growth, they tell a surprisingly similar story of economic growth. One key measure of economic power is per capita personal income, which is the money people earn from work, investments, and government benefits. In a local economy, it reflects how much money its residents have to spend, save, and invest. This gives a better sense of how the residents in a location are faring economically than more common production measures like GDP, which measure transactions in a place regardless of where the money ends up.
For our two cities, personal income per capita stays surprisingly close, switching back and forth 5 times over this period. Both places saw significant improvement in the per capita income (Allegheny by 120% and the Triangle counties by 157%). This is compared to Gary’s county, which increases only 75% over that time, losing ground each decade since 1980. A note that DC grows by 150% while starting and ending higher, which makes sense given it is a higher-cost city. In the future, I may look into controlling for local cost of living, which may make Pittsburgh's growth look even better.
Source: Bureau of Economic Analysis; “County and MSA personal income summary: personal income, population, per capita personal income”
That Pittsburgh’s Allegheny County could maintain economic outcomes in line with a growing sunbelt region while experiencing either a stagnant population is impressive. I am looking forward to diving more into Pittsburgh's experience, especially how it responded to the rapid and shocking decline of the steel industry around 1980 primarily through the levers of leadership, philanthropy, and building on its higher education assets.
It’s a lesson for DC, which is facing significant and rapid federal reductions in employment while not being able to rely on population growth to play the same role in its economy as it has over the last 25 years. Not only are there significant economic headwinds, but also its recent growth has relied upon international immigration, which will be significantly impacted by the federal crackdown on immigration.
What should DC do next?
DC and the DMV region already have some of the pieces in place for transformation. They have catalogued DC’s competitive assets which include a highly-skilled, impact-driven workforce (at least for now), world-class universities and anchor institutions, a broad set of private sector and nonprofit organizations, strong regional and global transportation networks and a strong sports and cultural scene. DC has also identified key competitive growth sectors including cyber, AI, life sciences, or communications.
The urgent next step to deliver this crucial pivot is to choose one sector to focus limited time and resources on. A broad range of interests including institutions, employers, funders, policymakers, community groups, and workforce players will need to buy into that sector. As importantly, this broad group will have to actively collaborate to build a North Star vision, develop an aligned strategy, and begin to deliver on that strategy.
This critical work is challenging but can be done. In addition to places like Pittsburgh and Research Triangle that did this decades ago, I am seeing this approach work today with an advanced pharmaceutical alliance in Richmond. These collective efforts around broad coalitions take leadership, time and resources, but when successful, their outcomes are much greater and longer-term than the sum of individual, siloed efforts. Given all the challenges DC is facing, this is a moment to act quickly, deliberately, and collaboratively to pivot toward a positive future.
1 Cambridge is technically a pivot from manufacturing to technology, but that’s over a much longer timeframe so not on my list above.
2 Glaeser warns: “The tendency to think that a city can build itself out of decline is an example of the edifice error, the tendency to think that abundant new building leads to urban success. Successful cities typically do build, because economic vitality makes people willing to pay for space and builders are happy to accommodate. But building is the result, not the cause, of success."
3 The challenge with metropolitan data is its inconsistent geography and availability over time.
