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Innovative cities, coffee shops & entrepreneurs w/ Christopher Hire – EP165

Cities worldwide want to be more innovative because innovation is a driver of economic growth. The Innovation Cities Index shows cities where they’re doing well and where they’re doing badly relative to other cities. Hear from Index creator Christopher Hire about the importance of having policies that are good for entrepreneurs and just how bad red tape is for innovation. You’ll also learn how the prevalence of coffee shops is a good predictor of innovation. And you’ll hear from Christopher about what cities are hot right now. 

Christopher Hire is Director of Data at 2THINKNOW, publishers of the Innovation Cities Index, a ranking of 500 cities for innovation, published since 2007. Christopher has given talks on cities and innovation to the OECD in Paris and the UN in Geneva. He’s a globally recognised expert on what makes cities innovative. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

Links relevant to the conversation

See and download the Index in Excel:

https://innovation-cities.com/indexes

Substack Innovation Cities Gazette Newsletter:

https://innovation-cities.substack.com/

Get the data – Answer your research question with city data points:

https://citybenchmarkingdata.com

Connect with Christopher HIre on LinkedIn:

https://linkedin.com/in/christopherhire

Other Links:

https://Linktr.ee/Christopherhire

Transcript: Innovative cities, coffee shops & entrepreneurs w/ Christopher Hire – EP165

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:00

Coming up on Economics Explored.

Christopher Hire  00:02

Coffee shops are a driver of innovation because how many people who right now probably listening to the podcast or how many people that are writing a paper or working on something or new ideas are sitting in a coffee shop.

Gene Tunny  00:18

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host gene Tunny broadcasting from Brisbane, Australia. This is episode 165 on innovative cities. My guest is Christopher Hire, director of data at two things now, publishers of the innovation Cities Index, a ranking of 500 cities for innovation published since 2007. Christopher has given talks on cities and innovation to the OECD in Paris, and to the UN in Geneva. He is a globally recognised expert on what makes cities innovative. So I’m really glad he’s come on to the show to share his insights. Cities worldwide wants to be more innovative because innovation is a driver of economic growth. Christopher’s innovation Cities Index shows cities where they’re doing well, and where they’re doing badly relative to other cities. Hear from Christopher about the importance of having policies that are good for entrepreneurs, and how bad red tape is for innovation. You also learn about how the prevalence of coffee shops is a good predictor of innovation. And you’ll hear from Christopher about what cities are hot right now, including Dallas, Fort Worth and Seoul Korea. Please check out the show notes relevant links and clarifications and the details of how you can get in touch with any questions or comments. I’d love to hear from you. Right now for my conversation with Christopher higher on innovative cities. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Christopher. Hi, welcome to the programme.

Christopher Hire  01:49

Thanks a lot for having me on your economics podcast. It’s a real pleasure Gene.

Gene Tunny  01:53

excellent. Yeah. Great to have you on. Christopher, one of my listeners, Dave attended a recent talk you gave. And he mentioned that you’ve done a lot of really interesting work on cities, you’ve got an innovation Cities Index. And I’d like to ask you about that today. But first, would you be able to give us a sense of the broad range of work that you do, please, Christopher?

Christopher Hire  02:18

Yeah. So currently, for the last over a decade now I’ve been working, running a small group analysts doing data about cities. So basically, we gather data from cities and we answer research questions. Now anybody who’s in economics or in the data field, and and I’m sort of I’m a combo I’m like, data math guy, and also a data science guy, but I was data science before they invented the term data science. Many of your listeners probably remember analyst programmers, yeah. Power, before Power BI it was Cognos, all those sorts of things, you know, the old, old stuff that it’s really the same thing. The Emperor with a new set of pyjamas some days. But yeah, so So basically lots of different data gathering about cities, difficult research questions, and usually who we help is if somebody has a research question about how to compare cities globally, there’s lots of data on how to compare Australian cities on the abs. But there’s not a lot of data on how to compare cities globally. And if you try to dig into the French system, you’ll hit some walls. And then if you dig into the Spanish system, you’ll hit some walls. And we’re sort of good at that. So we go through and we standardise global data kind of thing for cities. And it’s about 500 cities. And we do answer research questions. And we’d like to, you know, we’d like to do interesting things. So somebody gives us an interesting challenge. It’s quite fun.

Gene Tunny  03:40

Great. Yeah. keen to chat about cities. The one the indexes that I’ve noticed in the past are the rankings I’ve noticed in the past. The Economist, The Economist has a or maybe they, I’m pretty sure they still do a cost of living survey or across different cities in the world that’s aimed at I think it’s aimed at executives or professionals, what’s the what’s their cost of living in different cities. And also Monocle has a city’s index, what’s the best city to live in and that’s based on the Monocle, Tyler Brule’s magazine, exactly how cool they think the cities are. And one thing that’s interesting is that there was another index or another ranking of suburbs I saw the other day, which had Fortitude valley where my office is, which is one of the top 50 suburbs worldwide. But I think that’s in terms of some measure of coolness. But anyway, I want to ask you about your, your, your ranking or your index you you’ve got this innovation Cities Index. Could you tell us a bit about that, please, Christopher?

Christopher Hire  04:49

Sure. Look, most people know cities rankings as the livability indexes, and they are actually as you correctly identified, in the case of The Economist, more related to cost of living for wealthy expats, then really livability, but the marketing departments of cities love, just churning it out as were the most livable. But it’s really about cost of living a lot of the time. So Mercer and The Economist make those two. And then there’s a series of other rankings that we’ve often sometimes worked on, we’ve worked on Smart Cities rankings for IESE, and a couple of other rankings published by consulting firms that use our index as an input. So ours is a bit different. Because it’s not based on a utopian idea of cities. It’s based on the idea that you do the best you can with what you’ve got. And you try to create innovation. So in 500 cities that we measure, and we started off with 22 cities in 2007, because 500 is a heck of a lot. And we never thought we’d actually get there anyway. But the 22 cities we started with, we expanded it to 500. That kind of gives you a pretty good barometer of what’s happening in the world. And it’s a broad base concept innovation. So in other words, it’s looking at where you would like to live, where you might belong, where you might work or play, it’s sort of a broader space sense of innovation on what places are dynamic and water really good. But it’s answering that in a more systemic way than just, I happen to think this city is cool or not. And I think there’s a lot of newspaper ones, they really are all about who’s cool, who’s not. And it’s more about should be more about data. So we use data and quantitative and qualitative methods, but we use quantitative methods to create the index. So we have an algorithms that basically create the rankings.

Gene Tunny  06:42

Right. Okay. And what does it tell us? Christopher? What are the cities that are at the top of it? And How stable is the index? So the ranking? Is this something that is relatively stable over time, that you mentioned that it’s not just what people you know, what the analysts think is cool, it says its based on data, so these are these? These are data that have a lot of reliability? Or they don’t? You know, they’re not they’re not moving around a lot over time? Is there a? Yeah, what are your thoughts on that as well? As well as what’s the what are the ones at the top? Sorry? Yes,

Christopher Hire  07:20

yeah. So I’ll go, I’ll sort of unpack that in a few parts. And if you want to interject with a clarifying anything, if, if it doesn’t make sense, one of the things that many of us in this field suffer is reading too many PDFs. And with the $50 words, with a $5 word we’ll do and it rubs off on you after a while. So I’m trying to get out of the $50 words. So basically, the main thing about it is, is that the, you’re really comparing cities on their potential for innovation. And the way that you’re doing that is if I answer the second part, about the how we do it in a moment, but basically, you’re comparing the cities for innovation, based on looking at the conditions for innovation in those cities. And to do that we gather 162 indicators, and they have around 800 data points that we gather, and they’re very, like the indicators, the way the design is quite stable. So in other words, I have to put a little asterisk next to that. So the answer is it depends. But certain cities like Singapore, are highly stable. So cities that do very, very well in our index over time, don’t vary a lot. And you’ll see the same cities towards the top as long as they don’t shoot themselves in the foot. For example if they keep good government policy on innovation, like Malcolm Turnbull’s, federal government policy was very good. And I haven’t, I won’t go into that yet. But, but in effect, good policy on innovation, they keep a structural sort of a series of conditions for innovation, and they help encourage it, then they tend to be stable. So Singapore has done a very good job. Now, the first thing somebody in government said here is when I say Singapore has done a good job, how do we copy Singapore. And so that’s where our index is a bit different. We don’t say you should copy Singapore, we say you should be the best version of yourself. So Tokyo has also done an excellent job. But Tokyo is tied up in its culture. You can’t take Tokyo and just take some part of Tokyo say like, right, we’re going to copy all the vending machines in Tokyo and their robotics department. And we’re going to become Tokyo, a Sydney cannot be Tokyo. It doesn’t have the same structure doesn’t have the same culture doesn’t have the same transport system, spatial geographics, all these things, you just can’t be like that. So what we would say is each city should be the best version of itself and the cities that do the best that over time, like Barcelona historically has done very well except thing COVID basically cities like Singapore have always done very well. Seoul has been doing really well for a long time. Now. Dallas Fort Worth is another city that’s been climbing up our index for a long time. And I’m not mentioning Australian cities because people get into the Sydney Melbourne debate. So I’m just saying globally, Austin is doing very well, it has been for a long time. So our index picked up Austin early on in the piece. And we see it sort of cresting now. So Dallas is hotter than Austin in some ways. And Miami is another city that’s doing well with the exception of property prices. So each of these cities have a balance of factors. And if they do that, well, they remain remarkably stable. If they go off into left field and start creating dramatically bad policy, and I would say some of New Zealand’s cities are an example there, where they haven’t, they have the potential to be really great world leaders. And on a per capita basis, they’re amongst the best in the world. But they haven’t been doing good policy for a little while. And so they’ve lost their momentum. You know, it’s really, it’s a bit of, it wouldn’t take much to get him back. But it’s just that they, I think the, you know, when without the COVID thing, they’ve lost a bit of momentum. And the same with some Canadian cities, although the French speaking parts are doing quite well in Canada is bouncing back a bit now. So it’s hard to keep candidate down. So in effect, we’ve got these sort of great cities around the world. And if they get all their policy settings, right, but not perfect, then they go up. If they get their policy settings, bad, then they go down. And so in effect, our index over time, it has a thing called a five year average. And that five year average is pretty consistent. And so and it doesn’t matter how we run the algorithm, it can run, we run the algorithm to get a stable result, basically, relative to last year, we ran it 31 times. And at the end of 31 times we’ve got a pretty stable result. Bearing in mind there was COVID happening. So that’s a lot of answers to your question, sort of a junked points, but I’ll let you led on from that.

Gene Tunny  12:07

Yeah. I was just wondering how it comes together. You mentioned Tokyo was Tokyo at the top of your most recent index.

Christopher Hire  12:17

It’s been at the top a couple of years in the last few. So it’s one of the cities perennially has won. We’re the first index, I think put an Asia city at the top. We’ve also got Seoul near the top, and Singapore near the top.

Gene Tunny  12:30

And Sydney. Sydney’s top five at the moment?

Christopher Hire  12:34

Yeah, yeah, at the moment. That’s an outlier year, that’s largely COVID related. At the time we were doing the data, they were doing the best on COVID. And that sort of affected the COVID variables affected that but Sydney should be top 10 in the world. And Melbourne should be in there in the mix, too. But it depends on policy settings. And, and it’s complicated, because there’s not just councils and state governments often responsible for different things, and there’s community organisations responsible. So it’s a multi stakeholder thing that makes a city, whereas Brisbane has one council, which is much easier.

Gene Tunny  13:12

Right, What are the most important indicators, Christopher? Or what are the most important? Yeah, the most important indicators that distinguish between different cities? Is it governance? Or is it the amount of skilled labour you have? Or is it the museums or the art galleries? The what would you call them trying to think what you’d call that? I’m trying to think about? Cultural? Cultural? Exactly. Yes. Yes, those factors? Yeah. What are the most important? Are there a few that are much more important than the others? I mean, you’ve got it sounds like you’ve got a huge range of data. Perhaps what I’m getting at is what are the common factors? What Look, you’ve got all of these different indicators? A lot of them are going to be highly correlated or getting at the same thing. Can you give us a sense of what the most important data items are?

Christopher Hire  14:04

Well, the indicators don’t necessarily. So the indicators overlap in different ways. And so they’re designed to make it difficult to game. The problem with a lot of rankings is they can be gained easily by just announcing filings. And you’ll see this where cities that are capitals nationally become very prominent, you get these weird outlier cities and the outlier cities you think how did that make the list? That outlier city sometimes is caused by data, for example, for the whole country being filed in one city. So you get these sort of weird data problems? I think, realistically speaking, it’s best way to look at it is to look at what does it mean underneath and it means that individuals and businesses and stakeholders are broadly decentralised into different categories. So in a sense, it’s, it can be a central city if it’s a small place, like Singapore. But in many cases, there’s a lot of entrepreneurship happening in Singapore. And so you have to bear that in mind. So, in general, the correlation is to dynamic, entrepreneur driven cities, not centrally planned resilience. For those from an urban planning, background, Brasilia was a wonderful looking city from a from a photograph. But it didn’t work as an urban planning city. And just centrally planning everything, you can’t make a perfect city, what you have to do is you have to devolve some elements to different indicators. So by taking all the indicators, and looking at them broadly, there are some certain commonalities. So for instance, we have 14 transport related indicators, which would indicate the transport or mobility, and most of those are public transport. And so mobility is extremely important, as we saw during lock downs. So there is a correlation between mobility and creativity. If people stay in their cubicle, you don’t get many creative ideas. You don’t get creative ideas sitting in a cubicle. Most people, if we asked a group of people this question, they’ll say, Oh, I get a creative idea from going out into the bush, that’s one of the common ones. In the shower. The other one is that I get a creative idea of museums and art galleries. So that’s the that’s where the ideas come from. So if you don’t have those ideas, how are you ever going to keep up with China where they, they think tanks have IQs of an average of 150. And they select the very, very best and brightest people to go in their think tanks, yes, they might have procedural things. But they do give some leeway within their think tanks. And they have 150 IQ emission standards or some of the think tanks. So, you know, I don’t see some of our media, Talking Heads competing with the Chinese on the intelligence level, that they have their analysis, but they can compete on the creativity level. So that less we and one of the biggest, biggest, most annoying things you see when media talk about innovation is they keep talking about control and centralization. The problem with that is you kill the goose that lays the golden egg. It’s actually you have to decentralise the non strategic parts of it in order to allow it to function. If you centralise everything, you’re really just going to you control it, but you end up controlling less and less innovative economy. So, in effect, the main things driving this decentralisation in some respects, and centralization and others is okay. It’s a kind of interplay between all these things. And there’s lots of research into various things. Like, for instance, coffee shops, are a driver of innovation, because how many people who right now probably listening to the podcasts, or how many people that are writing a paper or working on something, or new ideas are sitting in a coffee shop, how many people are doing that, and coffee actually inspired the whole age of enlightenment, and was coffee houses that inspired all that. And there’s a lot of interesting texts, which I’m sure we’ve, we’ve we’ve read or videos we’ve watched about that. So coffee is a very important part of the Enlightenment, and coffee houses and Lloyds and all that sort of thing. So I think coffee houses incredibly important innovation, but they’re not really considered very often. So that’s a small indicator in our mix of indicators. But it clusters around people coming up with ideas and making the environment conducive for the person that’s, that’s, that’s ready, who has the means to come up with ideas to create innovation, and to develop things. You know, the best ideas often don’t come from the expert in the field. The best ideas come from, from random people who basically have some part of the expertise they need. And they invented. I mean, what the steam engine wasn’t invented by wasn’t invented by a professor was invented by a boiler maker, you know, it’s often but he was in that university environment is a boilermaker. So it’s often you need randomness for things to work, you know. And so, our index is designed to measure conditions for creativity. And it builds on a whole series of texts and papers and things that people wrote over, you know, from the period of about 1990s till about 2008. A lot of it. And there’s lots of great stuff out there. I mean, this. Thomas Stewart wrote a great book, Joel Kotkin writes some great stuff. There’s a whole series of papers by a guy called books by Nigel Harris, David Landis from Harvard. There’s a whole series of interesting things you can take, and you can extrapolate it, but our model kind of saves time and puts it into one place. So it’s not so complicated. I mean, you can read 5000 books or you can read use a model.

Gene Tunny  20:02

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  20:36

Now back to the show. Christopher, can I ask? Are the the indicators that you use? Have you got a list of them somewhere? Or is it proprietary?

Christopher Hire  20:49

Yes, the indicators are all on the website. And people can order the data. Okay, so it is possible, we don’t sell the data, we don’t provide the data for free. Because we wouldn’t exist if we did. But we sell the data. And we also sell the data to city governments to benchmark themselves. So that’s how we get some money for doing the index. Otherwise, it would be the world’s greatest charity project. Well not the world’s greatest but it would be a big charity project. So you get some infamous revenue from selling the data to cities and benchmarking cities. And corporations use it like insurance companies and, and banks and those.

Gene Tunny  21:28

Oh, good. And so you’ve got coffee shops, per square kilometre, or cafes per 10,000 people or something like that. It sounds like.

Christopher Hire  21:39

There’s about four or five Cafe variables, the cafe indicators. And we have a special algorithm that say forget outliers and cafe shops per square kilometre. And you can get outliers and total number of coffee shops. And you can get outliers in there’s no matter which variable you use, you can get an outlier in it. So we have a way of sort of kind of nutting that down to what’s a good score from that and then giving a score for cafes. And I was just looking at the cafes data this morning. That’s why I had primacy in my mind. Yeah. And it was interesting to note that the lockdowns saw some cities reduced one in five coffee shops, one in five coffee, close, you think about the flow on effect of that through the economy. It’s one in five coffee shops shops in some major European cities. Interestingly enough, some cities grew by 12%, which means one in eight coffee shops open. So that’s really interesting. And it’s not it’s an it changes the narrative about so it tells us something about the economy as well as coffee shops. So it’s all their small businesses and that and that their economic activity and how confident people are when people don’t buy coffee, if they’re not feeling relatively confident. They might cut back on their coffee. Yeah, avocado toast, as it became, yeah, smashed avocado. We don’t buy them anymore or something. So what was

Gene Tunny  23:01

So what was that time period you’re talking about there you mentioned? Some cities actually, there are more coffee shops. I’m just trying to remember this year. Okay. So post COVID.

Christopher Hire  23:12

So as of now, as of now, last month, okay, yeah. And more coffee shops opened, but they’re not. They’re interestingly ones that didn’t lock down as much or they went into the lockdown sooner and came out sooner. So that’s the sort of thing or they have. There’s a couple other explanations, but yeah, its interesting.

Gene Tunny  23:33

What are some of those, you know, off the top of your head what some of those cities are.

Christopher Hire  23:38

So I don’t want to misquote because I just looked at the data. There are cities in a couple of most that London has suffered from, the UK has suffered not long, I can’t say for sure London, I don’t remember the number. But UK has suffered shrinkage. And in generally in the coffee shops. And a lot of the French cities have suffered shrinkage in their cafes, but growth in some Swedish cities and want to say, East European countries. So Sofia has had some growth, Tallinn apparently. But that can also be that some people have decided that casual dining now is more profitable. So there’s a shift from some of the cities have shrinking numbers of bistros and growing numbers of cafes. So what they’ve done is they’ve converted to a cheaper business model where they can operate coffee shops, so they they sell coffee once upon a time we would have sold only meals. Yeah, so they convert their classification to a coffee shop, but continue trading rather than closing their doors and they get rid of all the white tablecloths and napkins which happened in Melbourne. You know, a couple of decades ago. So it’s it’s sort of an interesting thing that’s happened in but there’s growth in a lot of Eastern European cities per coffee shops, and shrinkage in a lot of West European cities. And a couple of German cities have grown, I think Dresden has grown a little bit, but I can’t have been a huge amount. But most of the rest have shrunk. The lockdown has really affected the small to medium sized enterprise, which has a flow on effect to the money multiplier through the economy and a whole series of other stuff. So it’s really, it’s not just coffee shops, it’s like there are bellwethers for small business and startups and all that stuff.

Gene Tunny  25:22

Yeah. One city that people have been concerned about is New York City, because it was very badly hit by the pandemic. And I don’t know, one in five small businesses or something like that closed down, maybe that’s an over estimate. That’s the number I think James Altucher quotes on his show. And he was basically saying New York City’s dead, right. It’s all over. And I don’t know if you’ve got any thoughts on what’s happening with New York, how it’s performing in the index?

Christopher Hire  25:53

Well, we’re doing look, the interesting thing is, I believe that narrative as well, to some extent, because there are some very strong numbers that showed people leaving New York prior to the pandemic. So one year prior, people were leaving New York, and people had continued to leave New York throughout the pandemic. And when I say New York, I’m referring to the five boroughs definition. But then you have to consider that some of those people have moved out to metropolitan New York, and then move back to the five boroughs. So it’s, it’s not as clear cut as all that. So New York still continues to do well, which surprises me greatly. And it may be that there’s just some lag in the data, but we are getting the data we’re getting in his COVID data, and COVID period, data’s 2021, some 2022. And it’s really quite interesting that, that they’re still they seem to be, it always bounces back. I mean, it’s one of those cities, it’s a perennial city like Paris, London, New York. And I think that always bounce back, you know, they don’t seem to ever stop being the great cities of the world. And you may think the data may do something, but then some other indicator compensates for it, they seem to be like a magic machine. I don’t know exactly how to describe them. But Melbourne has this attribute as well, to some extent, in the end, it bounces back. But, you know, New York is still up there in our list. And it’s not, it’s not totally and utterly. I’m surprised when I’m looking at the data because I expected to for more. And I made the point that I think there was so much movement to my hand Miami of capital and things during the pandemic. But that seems to be a biting now. And Miami does very well. I mean, we did this thing of industry diversity. And Miami is amongst the most diverse. There’s a certain way we measure this, but it’s showing up as a bellwether sort of happening economy, but the property prices are very high. So that might be putting a cap on it. And it’s I’m interested to see what will happen next year with that I don’t know what’s going to happen way. I mean next year, but Miami has been climbing our index and everybody says Miami, Miami, but it’s been climbing to index well before people started noticing and moving there during the pandemic. So it’s got a very good free enterprise and entrepreneurship vibe and in Florida in general, and Texas also, of course, they both support entrepreneurship. So surprised they do much, much better than cities of equivalent population. They do much better than they should basically, because they’re open to entrepreneurship, and cities that are kind of being you know, everything under control. And the Karen’s are in charge for lack of a better word, Karen’s with clipboards, measuring and monitoring everything. They’re killing the economy, and they’re killing. They’re killing their own wealth in the long run. So it’s not exactly intelligent. You know, how do you how do you take a how do you make a two bedroom house? You take a four bedroom house and divide it in two? Did you soak up your wealth and be more wealthy no matter what you do? Yeah. Eventually your tennis court gets cut down. So it’s sort of like you have to you have to let the economy run.

Gene Tunny  29:17

Yeah. So in terms of indicators, then you could have things like tax rates, you could have things like that. Yeah. How easy it is to start up a business or how quickly you can start up a business economic freedom. Yeah, yeah, that sort of thing. Okay, that’s all good

Christopher Hire  29:32

Company, we’ve got a really good company set up indicator that’s better than the World Bank’s one. It does use World Bank as an input. But when I say that is a lot of people have problem with the ease of doing business index. There’s been a lot of complaints about it. It’s kind of methodological black hole in there. And so we have a better way of capturing that. We do manually, and we’ve been doing that for a while. And we sell that quite a bit of that one. And the also, as you mentioned, The economic rights of what you consider as city level economic growth could calculate some version of that. And or estimate some version of that. And we have whole series ones around the setup of companies and different things. Yeah, the sort of things you mentioned.

Gene Tunny  30:17

Yeah. Okay. Now, you said before New Zealand has had some New Zealand cities have had some bad policies, what type of things? Would you say there are bad policies in those New Zealand cities?

Christopher Hire  30:30

Well, there’s a lack of focus on growing the economy. And there’s been a whole series of aborted social programmes that haven’t achieved. I mean, the housing initiative that was federal government in New Zealand just didn’t achieve anything. I mean, so the problem is, it’s not enough to say chair in policy and expect chair to happen. You know, a lot of people who are naive on policy, they think you can say something hasn’t happened. And something’s just not possible. You know, you can say that your concern no child wants is going to live in poverty, poverty, as Bob Hawke or and Bush have said, but whether it’s achievable or not, what you’re better off doing is making some incremental improvement. So an incremental improvement is making sure that 100,000 kids get laptop computers. So that’s a good policy, right? That’s a policy that is tangible, measurable, and you can say, well, we’ve got 100,000 Kids laptop computers, as long as they’re reasonably recent laptop computers and Celoron’s from five years ago. But so you’re better off focusing on stuff you can achieve and grandiose statements that just just don’t get anywhere. And I think New Zealand’s had a lot of grandiose stuff, and it hasn’t really, it’s that desire to be the most important and, and, sort of, you know, little is that is the tyranny of distance. It’s that Australia gets into it, too. We want to be the world leader in something and then you go over to France and, and Spain and you talk to them and they don’t care. They’re like, what we don’t care. You know, a lot of stuff we do, they don’t care. We think we’re impressing them with they don’t care. The French and the Spanish don’t care, European Union don’t care, the OECD don’t care. They might we think we’re impressing them by being this great leader in something, when we’re actually just talking to an echo chamber of ourselves and a bunch of media talking heads. I mean, we really, we just, sometimes I feel like you turn on the TV 20 years ago, you hear the same conversation, don’t you about, about everything, and it’s still the same now, you know, you’re still having the same conversation about the same issue going on about same thing. And you just think, well, I just turned it off and 20 years later to see if it’s still there, and nobody’s done anything. So it’s better to do small incremental changes that help. It can help people like so if you know, do something about domestic violence phones is that programme is doing that’s a practical thing, you know, practical stuff helps. And I think airy fairy stuff, you know, airy fairy announcements that never can be achieved or never be verified or loved by politicians, but, but not much used to the average punter.

Gene Tunny  33:00

Yeah. So Chris, you mentioned that your indexes of the data and your behind your index has been purchased by many different customers by city governments, presumably? Do you have any examples? Or have you noticed? Well, has it been a wake up call to any particular cities the data and has that inspired action? Have they changed things on the basis of this index?

Christopher Hire  33:31

We have, we don’t always know 100%. Because sometimes we do work by consulting firms. And so we’re not always sure of who the customers are. We know we had a lot of input into the UK’s innovation strategy, because we went through a consulting firm, and it got soaked up by that consulting firm, and it got passed into their innovation strategy. So we know we had a lot of input into that. A lot of input came in, we had some input from Australia’s innovation strategy at times because various policy things that I wrote, got picked up and implemented, but we don’t always get credit for it. But specifically, where we’ve helped, we’ve got credit, we’ve we’ve had done quite a bit of good work in the Emirates, and in the United Arab Emirates, we helped with some innovation policy there and they’ve, they’ve really run with it, and particularly in things like safety and, and areas such as road toll and things like that. A number of years ago, we had workshops that help them innovate, and they came out and then met some Australians who reduce the road toll here and we helped connect them up and we gave them a process for innovating in that area. So they rode top fell, it has stabilised, but it’s not as good as it should be. I mean, you can literally see people dying on their roads, still, but it’s better than it was. So that’s something where we provided the data. We provided innovation methodologies that helped them and we developed we work with them on, not specifically on that, but on the innovation methodologies that help their the government. And yeah, so we find that that’s been a really good, was a really good example from the past. And a number of clients, a number of people who attended training I’ve done have won awards in their particular for innovation in their particular finance related or insurance related roles. So we’ve done that sort of thing as well.

Gene Tunny  35:28

Okay, but it’s not just one more question if you’ve got time, Christopher, I’m interested in this. Yeah. What makes for a thriving or prosperous cities? I’m just trying to understand your insights, what you’ve discovered from your analysis, and you mentioned decentralisation. So you mentioned entrepreneurship. So I’m guessing you’re low. Low taxes and charges, I’m guessing. Yeah, the we talked about ease of doing business.

Christopher Hire  36:02

Yeah, yeah, there’s low taxes and charges. So that’s, that’s where we get into trouble. Because what it is not a pure policies, policy prescription. So for example, if I was a full on Republican, I’d say, get rid of all taxes and charges and the economy will do better. And if I was a full on, Democrats say, No, we have to have social programmes and social programmes will create the great economy. And if we don’t have the great society won’t have the great economy. And in truth, I think there is an element of yes, Dublin, for example, has done very well in our index, but they’ve hit a ceiling in some respects. And that’s because they did reduce their tax rates. So I don’t I don’t think we’re really saying reduce a purist would say reduce tax rates to zero. And yes, that’s one way you could do it. And that might work for, say, Dubai, or an Gulf country. But they have a resource backing for that. So we’re not sort of being idealistic, we’re saying, it’s a balance of things. And one of the things so if we’re talking about Australia, for God’s sake, get off people’s backs about entrepreneurship and mid sized corporations allow midsize corporations to grow. There’s an element in Australia where we favour large corporations constantly in every area, and that creates an issue where we don’t have, we just don’t have new companies being added to the ASX, we just don’t have that growth that we should have. And we can do that. But we just got to allow the policy settings to do that. We’ve got to allow manufacturing, we’ve got to encourage manufacturing, not follow this silly notion that we shouldn’t manufacture stuff. I think we’ve I think we’ve been disavowed of that, after during the pandemic, when you couldn’t get toilet paper, and you couldn’t get a face mask, and you couldn’t get medication. If someone I know couldn’t get their heart hasn’t been able to get their heart medication for three months and has to take a generic, the generic doesn’t work. It doesn’t reduce blood pressure. So I mean, it’s really problematic that we don’t manufacture things. And so if I was talking specifically about Australia, we need to in that particular situation, we’d need to keep our tax rates reasonable and increase our reduce the bureaucracy. And the problem we have is we have too many things the government is controlling and monitoring. And the problem with that is that takes up too much time from the business owner, therefore they can’t focus on innovation, they’re focused entirely on compliance. The only companies that survive compliance are big companies, where compliance is a much smaller percentage of the operating cost of the business. So if you’re, you know, you’re turning over 6 million a year or more, then it’s still a pretty big burden. If you’re turning over a billion a year, then compliance is just something you outsource to KPMG. And you can get away with that or someone similar or VAs or something. So you can outsource it to a middle small or large accounting firm, but, but to some extent, we just we put too much burden on business in Australia. And that really is the thing that does damage. And we need to encourage people to think outside the existing power paradigm of businesses, you know, we need to think of new and interesting types of businesses and create new and interesting business. And we need to just enable those conditions. So the conditions really are that you basically give people a little bit less bureaucracy, but it’s not just you can set a tax rate of 21%, you can set a tax rate of 28%. There’s pluses and minuses. But increasing sales tax, for example, would be very bad for the economy. But on the other hand, you could do that if you reduced compliance burdens elsewhere. So there’s always trade offs and everybody who’s in this field. Probably sympathises empathises and feels pain you say to her trade offs, but but that’s what it is. There’s trade offs, but Australia should basically encourage more dynamic manufacturing related industries and not promote so much very single minded large corporations controlling everything we have. We have a bit of a problem with that we’re going to we’re going to hit a hit a wall one day if we don’t watch ourselves.

Gene Tunny  40:16

Right, I’d like to ask also about how housing policy or urban development policy is one problem in Australia, and also some other cities while other countries and their prominent cities around the world. It’s becoming so expensive to live in them. And some economists are saying, well, that’s because of zoning policies which prevent developing redeveloping existing properties. There’s all this protection of existing a world heritage or character properties. Is that an issue?

Christopher Hire  40:48

I’m not so knowledgeable in that I’m not so knowledgeable in zoning, I did attend an excellent presentation. I can’t remember his last name is Italian gentleman, you should have him on the show. Sergio. He from where he’s from, I can send you his details. He’s written a book called The End of the Australian dream or something along those lines. And I’m sorry to say, Gee, I can’t remember the exact title it is sitting on my desk, but I haven’t had an exact title or something like that. He talks about greater density housing and things like that, I think I think more I would probably lean his understanding of that. I would say there’s an optimum rate of density. And there’s an optimum population size for cities before you get problems. So when cities go over 4 million pop, they hit problems. And I think there’s rings a population that makes ideal size cities. And so Melbourne’s problem started once it got a bit above 4 million, and didn’t have the infrastructure to support the extra million. And that’s sort of course Melbourne. transport infrastructure, you drive three kilometres and it takes you 45 minutes, you get a transport three kilometres, it takes you 35 minutes, it takes you 37 minutes to walk. So you’re almost better off walking if the tram breaks down. So if you’ve got to walk, if you cycle, but you’ve got to change clothes, and you’ve got to, you know, have a shower probably, or at least end of trip facility size, it’s very becomes a very difficult problem for when you hit that extra million. I don’t envy the public servants got to solve it.

Gene Tunny  42:23

Yeah, gotcha. Okay, Christopher to wrap up, is there anything we’ve, we’ve missed it or anything important that you’d like to, to explain or to talk about, regarding your innovation Cities Index?

Christopher Hire  42:36

Yeah, I’ll probably just give a summary because there’s a lot in it to unpack. But I would say that it’s an index that basically measures the ability of cities to have conditions for innovation. So it’s sort of correlates to where you would want to live, where you might want to work and play. And if you’re using it just in a general way, you’d look for cities where your language that you prefer, if it’s not English, is dominant. So if you were Spanish speaking, you might move to Barcelona, you might look at Barcelona, if you were speaking various dialects of Chinese, you might look there’s a list of Chinese cities in there, which are favourable, and and might depend on a whole series of characteristics. But =in the end, you might look at the politics to say, well, I want a Democrat city or a left leaning city, then you end up in Chicago. But if you are New York or something like that, but New York’s a bit more complicated, but if you want a more right leaning city, you might end up in Miami, or you might end up in Dallas, Fort Worth so so it’s sort of it’s there’s a balance for everyone in there. And we’re not trying to judge too much. And force anything, we’re just saying, there’s a general tendency mathematically, for cities that do a bunch of things. Well, but not best. You don’t have to be perfect. You just do them well enough, you will actually get ahead and the cities will become better places. And that’s really what we’re saying is they’re the sort of perennial cities like Paris and London always do well, because hey, everybody moves there, no matter what happens, you read a book about 1940s Paris, and pay it how horrible it was. You read a book about 1980s, Paris 1990s. There was a period in the 90s when Paris went for route, dark decade, I think, and then bounces back you know, so people will move to New York again, people will move to London again, their perennial cities and just the same as Tokyo is the Japanese perennial city and I think Seoul is becoming a perennial city now. So and I think Sydney and Melbourne will eventually be perennial cities as well. So Brisbane is on its way.

Gene Tunny  44:38

Yeah, because they get that critical mass you get the or the accumulation of knowledge and know how in the city, you get these established businesses and yeah, and so it’s a matter of population and skills and and the right policy settings. So, yeah, okay, well, that’s great, Christopher, I’ll put a link in the show notes to innovation Cities Index. And I’ll have another look through the, well, I’ll have a look through the, the all of the different indicators that go into it.

Christopher Hire  45:18

I could send you some links that people can download the actual indicators, not the data, obviously, we sell that, but the list of indicators. And also, I’ll send you a link to a newsletter we putting out we’ll start putting out on substack. So oh, it’s much easier to put it out in a newsletter format. It’s still early stages in the newsletter, but it’s just that we’re putting that out in stages, because it’s better than trying to put it out as one big block. Once a year sort of thing. So we think it’s better to trickle it out. And we go.

Gene Tunny  45:49

What’s your substack newsletter called?

Christopher Hire  45:53

Innovation cities. innovations.com hasn’t got a dash in that line, because they won’t allow a dash in that one. So and websites got innovation-cities.com, but the substack just innovationcities.substack.com

Gene Tunny  46:06

Good one. Okay. So, Christopher Hire, thanks so much for your time. I’ve really enjoyed talking about innovation cities. It’s been terrific. Thank you.

Christopher Hire  46:15

Thank you very much, Gene. And thanks to your listeners for listening to the podcast to the end. So I’ve heard this message, they heard the end. Thanks a lot. If anybody’s got any questions, they can hit me up.

Gene Tunny  46:26

Excellent. Thanks, Christopher. Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplore.com And we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye

Thanks to Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

Please consider signing up to receive our email updates and to access our e-book Top Ten Insights from Economics at www.economicsexplored.com. Also, please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

Regional divergence: why cities are growing faster than regions w/ Robert Sobyra – EP160

Why are cities growing faster than regional areas in many economies around the world, including in Australia, the US, and UK? Robert Sobyra of Construction Skills Queensland explains his recent research findings to show host Gene Tunny. Robert and Gene discuss what the predominance of high-skilled employment growth in cities means for regional economies, and whether policy measures to address the regional divergence would be desirable.

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher

Links relevant to the conversation

LinkedIn profile: Robert Sobyra

Rob’s LinkedIn article Why Regions Are Falling Behind – And What To Do About It

Rob’s research paper: “Unbalanced Growth in the Labourscape: explaining regional employment divergence”

Data mentioned by Gene:

Trend Deck 2021: Urbanisation (UK Government)

Urban population (% of total poulation) – United States (The World Bank)

World Urbanization Prospects 2018 (United Nations)

Transcript: Regional divergence: why cities are growing faster than regions w/ Robert Sobyra – EP160

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:01

Coming up on Economics Explored.

Robert Sobyra  00:04

So that agglomeration thing is the real reason why it’s happening so strongly in the big cities, the high skill employment growth because that’s always where it’s happened and so it feeds on itself. So it becomes a cumulative process of self reinforcement.

Gene Tunny  00:20

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist based in Brisbane, Australia and I’m a former Australian Treasury official. This is episode 160. On regional economic divergence. This is a big issue in many advanced economies, including in Australia and the US. My guest this episode is Roberts Sobyra, Director of Research and Digital with Construction Skills Queensland. Rob recently wrote a great article about why Australian regions are falling behind and what to do about it. And I thought it would be good to invite him onto the show to ask him about his analysis. Please check out the show notes, relevant links, and for details of how you can get in touch. Please let me know what you think about what either Robert or I have to say in this episode. I’d love to hear from you. Right oh, now for my conversation with Robert Sobyra about regional economic divergence. Thanks to my audio engineer Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Robert Sobyra from construction skills, Queensland. Welcome to the programme.

Robert Sobyra  01:30

Hi Gene. Thanks for having me.

Gene Tunny  01:32

Oh, it’s a pleasure. Rob. I read your newsletter regularly, “The Flip Side” on LinkedIn.

Robert Sobyra  01:39

Thanks, you and my mum.

Gene Tunny  01:41

I think you think there might be a few more than that. I think it’s a great newsletter. It’s and in your last newsletter, you wrote about how you had some recently published research that showed jobs growth in Australian big cities. There was over, what was 2.4% annually, on average over the last two decades, and that was compared with 1% in regional Australia. Okay, yep. Yeah, that’s really interesting. And that’s, that accords with what I’ve seen, or the data I’ve seen and what you see if you go out to the regions and versus going to the big cities. I mean, clearly, that’s, that’s the case. And it looks like we see similar trends in countries around the world. So we could talk about that. And the point you make is that the economy creates more high skilled jobs, then middle skilled jobs. And these jobs are, well, the vast majority of them are in big cities. And you’ve done some research on that, that I think is really interesting. I want to chat about that. So yeah, it’s great. You’re on the show. To kick off I’d Yeah, I’d really be interested in I mean, what is the role of Construction Skills Queensland? What do you do here? And what’s your role there specifically?

Robert Sobyra  03:02

Yeah, sure. So CSQ is a pretty strange little organisation, a quasi government body and we collect the levy out of the construction industry. So any project that’s more than 150 grand gets levied .5%, or something like that, something of that order that goes into a fund, a training fund, and it’s our job to reinvest that money into the skills and training of the construction workforce. And, I run the research team here. So my job is kind of twofold. One is to make sure that we’re spending that money where it’s needed most. So where there’s labour shortages, where there’s gaps regionally, in skilled trades, and that sort of thing. And that helps us direct our investment. And, and then on top of that, we sort of do sort of original research that, you know, we’re in a pretty, pretty privileged position here, where we’ve got some revenue that allows us to do some, some research for the good of the industry. And that generally looks at issues around that sort of nexus between construction skills, labour, and forecasting labour shortages, that sort of thing.

Gene Tunny  04:04

Okay, so is CSQ helping people get into apprenticeships? Is that something you’re doing?

Robert Sobyra  04:09

Well, we do a little bit of that. We call that career pathways sort of stuff. So we do a fair bit of work with schools and helping people understand what a career in construction looks like, that sort of thing. But really, it’s mainly focused on existing workers. So if you’re a construction tradesperson, you might be a carpenter, you might be looking to upgrade your skills to say, get your builder’s licence, we can cover the cost of the majority of that training for you, if you’re eligible.

Gene Tunny  04:34

Oh gotcha. Okay, so you help people skill up. Okay. That’s great. Right. So let’s talk about your research or so it’s in this sort of field of regional economic development. What got you interested in this, this field to begin with are these types of issues?

Robert Sobyra  04:53

Yeah, so it’s broadly I guess you call it economic geography and regional, regional economics and regional economic developments have become a passion of mine. Over the years, as I’ve been working for CSQ, I do a lot of travel to the region throughout Queensland. And I think you know, I grew up in a big city, and like a lot of boys who grew up in a big city, you don’t pay much attention to the regions and, and there is this tendency to forget about them. And even a sort of thinly veiled contempt for regional issues sometimes I find in the big cities and so the more I travelled regionally, the more I realised how much that kind of forgotten places, and yet how much they contribute to the economy. You think about saying mining, for example, all of it comes out of regional Queensland. Yet the big policy discussions, the big planning discussions, almost universally, focus on Southeast Queensland, here in Queensland anyway, so. So my interest came out of a motivation, I guess, to correct that, and to put more of a focus on regions and to start trying to understand why it is that the outcomes in regions so often don’t diverge, or, or there’s so much so often a disparity of outcomes, whether it’s employment income, or whatever, between regions and big cities.

Gene Tunny  06:13

Okay, so you talked about economic geography, there’s a field of economic geography. And am I right that this is about the location of economic activity? How can we describe what economic geography is about broadly?

Robert Sobyra  06:26

Well, basically, the starting point is that, you know, there’s no such thing as a national economy, there really isn’t such a thing as a national or even a state economy, you know, economies happen in very particular places. So economic geography is really just recognising that and just just bringing the place back into the economy, rather than those sort of national abstractions that we get in the in the national accounts, you know, that smoothed over a lot of variation, and a lot of unevenness in terms of where, you know, real human beings actually live in work. So it’s about getting back down to that, to that to the roots of where economic activity really happens.

Gene Tunny  07:04

Okay, and so, one of the propositions and it accords with what is what the data tells us, or what real life tells us is that the regions are different, they don’t necessarily converge to the same industrial structure or level of income and output. So I thought, that’s one of the points I think you make in your paper that we’re going to talk about that there can be this divergence. So absolutely keen to chat about that. Now, have you done a PhD? Are you doing a PhD?

Robert Sobyra  07:35

Just in the examination phase at the moment. So all but done.

Gene Tunny  07:39

Okay. And is this what your PhD is on, this type of Research? Right. Okay. Terrific. And that which, which school is that?

Robert Sobyra  07:50

That’s at UQ, The University of Queensland, School of Earth, environmental sciences, with the human geographers there.

Gene Tunny  07:57

Okay, that’s great. And because it’s got a real economic aspect, this and I know you do a lot of economic analysis in your job here. We’ve presented at the same conference in Rocky. 

Robert Sobyra  08:09

Rocky as it was last year. 

Gene Tunny  08:13

Yeah, that’s right. Major enterprises conference. So absolutely. Excellent. Okay. So can you tell us about your paper? Please, Rob, what did you find in it? What? What were the main findings? How did you go about it? What was the techniques and then after that, we can talk about what it means even just tell us a story about the paper, please, that’d be great.

Robert Sobyra  08:34

Sure. So the, the original idea from the paper really came about, because up until around the turn of the century, there was quite a lot of interest in this area of regional economic divergence, and trying to understand, particularly in Australia, why it is that certain regions are outperforming others, particularly big cities are outperforming smaller regions. And, and sort of even just describing that, and mapping, that landscape was a big deal in the 80s, and the 90s. And then it kind of all went quiet around the turn of the century, and academic interest in this just really waned off, and we really got that almost singular focus on the national economy. And, and even even today, when the Reserve Bank talks about regions, it’s actually talking about states and territories, when you look at the stuff they produce, you know, and so, I was never comfortable with that, because, because just my observation of working across regions is that the outcomes can vary so much and the experience the lived experience on the ground of firms and workers in regions can be so variable. So I wanted to bring a bit of that place back into the, into the, into the discourse. So so my, my objective was to sort of update the record in the first instance and say, Alright, in the two decades since the turn of the century, what’s happened, and what I observed is that the patterns that had been picked up in the 80s and the 90s have actually been been continued, not only continued but intensified. And that’s broadly when it comes to employment. That’s my, my sort of main area is employment growth. The trend has intensified. And we’ve seen this sort of widening of a gap in outcomes in terms of employment growth between big cities and regional Australia.

Gene Tunny  10:21

Right. And so this is this statistic that all these stats that I mentioned before, Australian big cities have been growing at 2.5% trend term per annum over the last two decades. Yep. In trend terms versus 1%. In the regions, okay. And that’s going to over time that’s going to lead you know, the cumulative impact of that is huge, isn’t it?.

Robert Sobyra  10:44

Yeah. Yeah. And so. So that was sort of, I guess, the threshold question, or do we still have this thing called regional divergence and tick we do and, and it is, neoclassical economics holds that that should converge over time. So this, this, this divergence should actually shrink and we should find a sort of a nice equilibrium where outcomes equilibrate. But actually, we’re observing, and we’re observing this right across the world that outcomes seem to be diverging more and more. So my next question was trying to explain that. So why is it that we’re observing this phenomenon over cumulative pattern of regional divergence? So it’s ongoing and it’s compounding over time the wedges opening up? Why should that be the case? When, when neoclassical models suggest that the opposite should be happening?

Gene Tunny  11:35

Right? And that’s because if there is this divergence, then there’s obviously going to be that the available land available to people without jobs in these regions have massive investment opportunities. And so capital and labour should migrate?

Robert Sobyra  11:54

Yeah, that’s the theory, right? If you have excess supply in one area, then that should encourage firms to move there to exploit the lower rents, etc. And then, over time, that should equilibrate. Yeah. But that’s clearly not happening. It’s not happening here in Australia. It’s not happening in the US. It’s not happening in the UK, we’ve got this sort of observed pattern in most developed countries. So it’s, it’s been, I guess, my project has been to try to contribute to our understanding of what that’s all about. And there’s been some series in the past with some ideas around, you know, amenity. So one popular idea. The early noughties was that well, the reason why big cities are outperforming is more people want to live in big cities, just because, you know, the culture is better, apparently, you know, the food and the wine and everything is better in big cities. So that’s obviously why people are moving to big cities. And I never really swallowed that argument. And actually, it hasn’t stood up to any academic scrutiny in the last couple of decades. But that was a popular theory to begin with. But I really focused on the structure of the labour market, and just observing how, how our economy has been changing quite considerably in some pretty fundamental ways over the last couple of decades will really since the 80s, to be frank. And maybe there’s something in this that’s driving this divergence, you know, and I’ve really leveraged this concept of job polarisation, you’re familiar with this idea of job polarisation, where you’ve got you’ve got some high skilled jobs growth, and you’ve got some low skilled jobs growth, but the middle is getting hollowed out. Right. So middle skill employment is really shrinking. And low skill employment is growing and high skill employment is growing.

Gene Tunny  13:47

So what would you mean by middle skilled? So let’s say higher skilled, I’m guessing you mean tertiary educated professional jobs, middle skilled, is that the trades.

Robert Sobyra  14:00

They are middle skilled, but it’s actually broader than that. So, my favourite example is the finance industry. Okay, so once upon a time bank branches littered the landscape, yeah, and those bank branches were full of clerks, middle skill clerks, you know, my mum was one of them, sort of paralegal type person, did a lot of conveyancing, that sort of thing. Not tertiary qualified but you know, had the equivalent of a TAFE qualification. And anyway, you know, these were, these were thick across the landscape back in the 70s, and the 80s. And over time, what’s happened is a lot of those jobs have evaporated as, as you know, banking has become more digital. And that’s created a whole new set of occupations and skills. But all of those occupations and skills are mainly concentrated in big cities. Now they’re not in bricks and mortar branches across, across the state.

Gene Tunny  14:55

Yeah, exactly. Okay. And so what analysis did you do, Rob, how did you? In what proposition? Did you prove you, prove that there was this? There’s divergence and you’ve been able to prove what’s causing it isn’t right.

Robert Sobyra  15:12

Yeah so basically, it comes down to this, this job, polarisation theme. Okay, so what’s happening is effectively high skill employment growth is growing. Yeah, low skill employment growth is growing. But whereas low skill employment is uniformly distributed across the landscape, employment is not all of the high skill employment is basically accruing to the big cities. So they’re getting a dividend, they’re getting a sort of a growth premium. That’s not available to the regions. Because, you know, high skilled jobs just don’t land in regional centres, they land in big cities. And so there’s this extra increment of employment growth that you’re getting through this high skill economy. And that’s accruing disproportionately to the big city. So in aggregate terms, you wind up with overall, more employment growth in the cities than you do in the regions.

Gene Tunny  16:10

So is this because all the knowledge workers need to be co-located there are these agglomeration economies or whatever, and there’s also this Richard Florida stuff on the creative class, and they want to, they want to live in the cities to enjoy the bohemian lifestyle in the cities. But there’s also benefit, there’s benefits from them co locating. So I’m trying to, I thought that point you made at the beginning was interesting that there were these theories that people move to cities, because their lifestyle was better. I think Richard Florida was getting at that. But then he also recognised that there are benefits from the clustering together.

Robert Sobyra  16:46

Yeah. And that’s really the more important fact. And to put it in simple terms, birds of a feather flock together. Yeah. And that’s really what’s been happening. So it’s not new, that high skilled jobs concentrate in big cities, they always have. Yeah, the problem is when you high skilled jobs get created, they go to where there’s already existing agglomerations of high scale occupations, because it’s just easier if you’re setting up a business and that business requires a lot of data scientists, you’re going to go to where the data scientists are, you’re not going to go necessarily to wherever you think your customers might be, you’re gonna go to where your workforce is, if you don’t need to serve your customers directly. Like in the bank. Yeah. In the banking industry, right. So that long duration thing is the real reason why it’s happening so strongly in the big cities, the high skill, employment growth, because that’s always where it’s happened. And so it feeds on itself. So it becomes a cumulative process of self reinforcement.

Gene Tunny  17:49

Yeah. Well, one thing I was concerned about, say, eight, maybe seven or eight years ago was that when the interstate migration, the Queensland dropped off, it looked like a lot of professionals, a lot of the professional jobs were going to Sydney and Melbourne. So jobs in finance and, and we weren’t getting as many of them up here. But I think now, things have turned around a little here and within the people moving up here, so Queensland is picked up quite a bit, which is good. So I guess, the major cities you’re talking about where these professional jobs are growing in Australia, Sydney, Melbourne, Brisbane, Perth, Perth, really? Because of mining?

Robert Sobyra  18:33

Yeah, or just Yeah. And it’s just a growing agglomeration in general. You know, Perth, it’s the only obviously the only big city on that side of the continent. Yeah. So yeah, now what’s Melbourne, Melbourne, Sydney, Brisbane, Perth, actually, Sydney, Melbourne, Brisbane, Perth in that order, are the big growth centres.

Gene Tunny  18:51

Right. Yeah. And so in your view with this, this is the major factor. I mean, this explains the bulk of this divergence in outcomes between regions and in cities and regions, why cities are doing so much better because that’s where the, the employers of high skilled labour are, well, we’ve got governments, we’ve got administrations, we’ve got corporate HQ. And so that’s where the jobs growth is occurring.

Robert Sobyra  19:17

Well, that’s where that’s where the existing stores of human capital are. Okay, for that kind of work. So yeah, to take a live example. All the big miners as you’re probably aware of are automating all their fleets of trucks in their mines, right, so those miners historically would operate out of Mackay. You know, a lot of activity out there that truck drivers used to be essentially based in those sort of big regional centres and then they go out and drive the trucks on the mines. Now as they move away from driven trucks to driverless trucks, they set up these remote operation centres. Now those remote operations centres need to be staffed by a completely different category of worker not truck drivers anymore, obviously white collar professionals and where do you find those white collar professionals? In Brisbane? So where are they setting up the remote operation centre? In Brisbane?

Gene Tunny  20:10

Yeah, there’s a similar story in agriculture too, isn’t there? So, built over the years, agriculture has become more mechanised with these John Deere, cotton picking machines and things like that. And that’s reduced the labour requirement on the land. So yes, yep, similar story. And that’s affected the viability of a lot of these, these regional towns, many of which had more people in 1950 than they do today. That’s really extraordinary. Not the sort of major centres but in the regions. But yeah, if you drive through regional Queensland or regional New South Wales, plenty of towns like that, you get the sense that they were thriving much more 50 or 60, 70 years ago than today. Extraordinary.

Robert Sobyra  20:54

Yep. It’s, you know, the jobs numbers are one thing. So I focus on the quantity of the jobs that are being created. But there’s also an income element here, because high skilled jobs are higher income jobs. And so all of these higher income jobs are concentrated in the big cities, rather than the region. So it creates an income divergence, not just an employment growth divergence, which then has, obviously, feedback loops to the local economies. So the region ends up falling behind in income terms, not just in, you know, gross numbers.

Gene Tunny  21:30

Good point, I might just read out some of these stats that I found today when I was looking this up, because I had a sense that this was happening all over the world. Or at least urbanisation, we know that the world’s becoming more urbanised and might have been a few years ago, I remember when it when the stat came out, it was quite striking that for the first time in history, a majority of people live in urban areas, maybe it was 10 years ago, or whenever, whenever it happened, or remember when it was reported. The UN, or sorry, the World Bank, it has a world urbanisation Prospects Report 2018 and in 2018 55% of the world was urban. And that’s projected to get to 68% by 2050. It was 30% in 1950. Yeah. And so I think I mean, one of the big contributors to this growth is obviously China, or the people moving from regional areas to the bigger cities. And this is, this is, this is part of their economic growth story. Because, because people are less productive on the land, and they’re in cities. So to an extent, this is, this is a great thing that, you know, there is this there is this, this movement to the cities, because you can be more productive. But yeah, it’s, it can be hard if you’re in one of these communities and your communities are not not thriving, whereas there could be a lot of good things going for many of these regional communities’ livability, for example, have you thought about what’s happening? I mean, you mentioned in your piece that with COVID, there were some people looking at relocating to the regions, is this happening? Or do we know what’s going on there?

Robert Sobyra  23:13

Yeah, it doesn’t seem to be happening as much as many people think it’s happening. So there was a big uptick in net migration to the region net, an internal migration out of capital cities. But it seems like the main factor behind that lift in net migration is actually fewer people leaving the regions to come to cities rather than more people leaving cities to go to the region’s. I mean, I think that definitely is a bit of a trend in that area. There’s certainly an appetite for it. The regional Australia Institute did a really interesting survey. And they found that 20% of the people they surveyed just normal workers in big cities would be open to moving to a region if you know their work and lifestyle would allow it so I think that clearly is an appetite for it and this idea this sort of Floridian idea this Richard Florida kind of idea that you know, people only want to live in big cities these days, because that’s where all the best bars and museums are. I don’t think that stands up to scrutiny. I think for every person you come across who loves the big city buzz, there’s someone else who’s just aching for the peace and quiet and you know, the chill over regional sort of move and I personally know people have made the move.

Gene Tunny  24:28

Well, if you go if you’re close enough to a regional centre doesn’t have to be a big city. It could be a place like Bundaberg or, or somewhere that size. A city that doesn’t have any more than, what, 60,000 people but it’s got some great bars there. There’s the, yeah, there’s that beautiful beach Bargara and then there’s the Bargara beer company, the craft brewery which has a great place.

Robert Sobyra  24:56

Bundaberg

Gene Tunny  24:59

But there’s a lot going on over many of these regions. Yeah. Big shout out to Bundy. Bundy. And one thing I noticed too is that this movement to the regions some of it is to regions that are there close to the capitol or they’re sort of part of the same you could argue part of the same conurbation. Yeah. I’m trying to remember if in some of those states Gold Coast is considered regional

Robert Sobyra  25:28

Yeah, so in my research I absolutely did include Gold Coast Sunshine Coast in this broader metropolitan economy. I operationalize a big city as any region area four regions, sorry, but any any region within 100 kilometres of the inner city GPO. Yeah. So that that takes us to the Sunshine Coast, that takes us to the Gold Coast.

Gene Tunny  25:57

That makes sense, because I know that there have been, you know, if people do move to the regions or outside of Brisbane, the metro area, it’s, it’s often too, and they come from Interstate, it’s often to either Gold Coast or to Sunshine Coast and know Noosa and Peregian, they’ve done really well recently, but that’s sort of part of the whole 200 kilometre city. So I would think that’s really, in that urban area. And it’s those other regions that are further away, that don’t have the big corporate employers, the HQ, they don’t have state government or federal government offices. And one of the points you make is that there’s one strategy that governments could adopt to try to promote the regional moving offices, offices of particular agencies to regional cities.

Robert Sobyra  26:51

Yeah, I played with this idea a little bit. I was really interested to see if you remember, I think it was a year before last, Barnaby Joyce, when he was Minister for Agriculture. Yes. decided to move the Australian pesticides and veterinary medicines association to a regional, can’t remember where

Gene Tunny  27:08

Was it Armadale ?

Robert Sobyra  27:09

I think it was. Yeah. So move it from Canberra to Armidale. And he just did it by fiat. He just said, you know, he was now going to be in Armadale. And goodness, there was an uproar. It was so much pushback. So I think he did it, he still did it, but not without losing a fair bit of skin. So I think forcing it on people is problematic, you know, particularly when, let’s say you’ve worked in Canberra in this agency for 20 years and being told you got to uproot Armidale. It would be pretty confronting, and so they shed a lot of staff in that process. I think it’s, it’s problematic to force people to move, but I think governments can be doing a lot more to just open the option up and allow people to move if they would like to, you know, yeah, you and I, we both worked in government, we know what it’s like, yeah. It’s not many jobs, really in government that has to be done from William Street, you know, from Brisbane. Yeah. Lots and lots of those jobs could, could be done quite comfortably remotely from any part of Queensland.

Gene Tunny  28:10

Yeah, and I mean, what we’ve learned during this COVID period, is that there’s a lot more work that can be done remotely where you don’t, you don’t see each other personally in person for weeks or months. You just interact over zoom, if you’re in the same city, so it can work.

Robert Sobyra  28:27

It turns out the world still goes round. Yeah, I think that was another key lesson that, you know, the culture of presenteeism was really challenged during the pandemic, and actually people are productive when, when left to work on their own from home.

Gene Tunny  28:43

Yeah. So there could be some scope for governance to relocate or have some of their offices, satellite offices or, or even move the head office of an agency to a regional centre. That’s a possibility. I remember I once floated the idea that you could move Work Cover to Townsville. That’s, you know, that’s one thing I’d, I’d propose that that’s a possibility. And when you think, think about what you could move in, as I think in New South Wales, they moved the Word Cover head office, their Word Cover to Gosford or something like that North of Sydney, if I remember correctly. If not, I’ll correct that in the shownotes. What else can be done? Rob? If this is a problem? Well, one, do you think it’s a problem? And if it’s a problem, a policy problem, what should be done about it? What are the levers? What could governments do?

Robert Sobyra  29:37

Yeah, well, the The challenge, of course, is you know, we’re a free market dominated by private businesses. Yeah. We’re not, We’re not Russia or China. We’re not going to tell them where to go.

Gene Tunny  29:47

To Siberia. Yeah. Economic development of Siberia. So they go.

Robert Sobyra  29:53

Exactly. So it’s all about nudging and incentives which is always a little unsatisfactory. But certainly I think the framework or the mental model needs to change here, when it comes to state government and local governments in particular, when they’re thinking about what they need to do to generate jobs growth. So often I hear when I go to a region that, you know, the mantra is, well, we need to keep our kids here, we need to keep them here, stop them going to Brisbane to study and find work and stuff. And I feel like that’s a bit the wrong way around the mental model should be we need to get the jobs here. And then the kids will stay, if the jobs are here, you know, if the opportunities to, to forge a career in a professional sort of career path, or local, I think you’ll find people stay local. So for mining, the policy focus, and I don’t know what the right solutions are, but the policy focus, the principle needs to be on attracting high skilled jobs to regions. And I think the government can play a role in, in showing the way there by, as you say, setting up jobs or making regional jobs more available to public servants. I think that’s a real option available to governments that would be very low cost and very feasible, and would send a strong signal to the private sector that this can be done, and it can be done productively.

Gene Tunny  31:26

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  31:31

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Gene Tunny  32:00

Now back to the show. Is there scope for measures or support for regions to, to boost the amenity to boost the livability of the regions? I mean, one thing you’d want is good broadband, you want to make sure that your broadband is okay, so remote workers can locate there. I think in Australia, I don’t know. I mean, I think I know there are some black spots with all of these things. But I think generally, internet, I think it’s pretty good in most parts of Australia, because we’ve had we’ve got this National Broadband Network and they tried to roll it out as far as possible across Australia, so but I’m just wondering what if that’s an area that should be looked at the livability making it attractive investing and beautifying the streets? Yeah, I don’t know. I mean, there’s the investment climate too. You want to make sure you got low, low rates, you want to be as friendly to business as possible to make it easy to get development approvals. Yeah. Do you know?

Robert Sobyra  33:02

Yeah, I think all that is really important. I mean, the amenity side of things. I feel like local councils actually do quite well, throughout Queensland. Most of the places I go to in Queensland, there’s a huge focus on beautifying places, public realm, that sort of thing. I feel like that’s kind of in hand. I think the risk is that we kind of become that one trick pony. And we think that that will solve all our problems. But the more important things are those latter things you just mentioned, how do you attract investment to your region, and not just the investment, but the high quality jobs that come with that investment. So whatever settings, governments can put in place, local government can put in place to, you know, expedite building approvals and other you know, the state government, payroll tax, etc, things like that. Yeah, yeah.

Gene Tunny  33:52

Do we know anything about educational levels in regions? I remember when I looked at it last and I looked at this idea of a University High School in Townsville, there was one idea is that there would be a James Cook University High School, which would feed into JCU. One of the issues they had at the time, when we looked at it, was that there was already some under utilisation of existing high schools in Townsville. So there wasn’t at that stage at that point in time, there wasn’t the demand for it unnecessarily, but it’s a sort of that sort of thing might be useful in some regional centres because we know that there is a they do seem to have lower rates of retention to year 12. And then and then lower transition rates from high school into university. So if you can really invest in the schooling system, get high quality high schools, University High School where there’s a connection between the high school and the university. So students at the high school could do uni courses. They can interact with lectures, I guess, trade with high schools, too. I know in Townsville that there’s a trade school Tech-NQ ? I think it is. So there’s something like that. That is education, part of the story, improving education so that you’ve got this skilled, highly skilled workforce in the regions that could be attractive to employers to then set up and relocate.

Robert Sobyra  35:33

Yeah, no, I think you’re right. And it’s a bit of a chicken and egg thing here, isn’t that, you know, because the employer is really, really interested in coming to where the workers already exist. They don’t want to have to create a workforce they’re going to find existing labour pools they can tap into Yeah. So in one sense, yeah, we need to have the human capital creation happening before you can attract the industry. But at the same time, why would a university or an educational institution offer a degree in x, y, z, if there’s zero sort of career pathways?

Gene Tunny  36:11

Well, what I’m interested in is this new, this push for hydrogen and then renewables. And the state government here has this new energy plan, and it’s pumped hydro, and then we have to wait and see whether they can actually get these dams built. But, but yeah, there’s a lot of interest in, in energy and a lot of that, in new ways of generating energy. And a lot of that is going to happen in the regions, isn’t it? So is this on CSQ’s radar? Because construction is obviously involved in constructing a lot of this new infrastructure, isn’t it?

Robert Sobyra  36:46

Absolutely and the timing is impeccable, because just a month ago, we released a report examining this exact question, a piece of research, we asked one very simple question. If we want to get to net zero by 2050. If we want a hydrogen industry, how much stuff are we going to have to build? And where will we have to build it? How many solar farms? How many wind farms, and the short answer is a lot. Yeah, just staggering. And for me, as a regional economics sort of scholar, the most interesting finding is that virtually all of this investment lands in regional Queensland, yeah, central Northern Queensland. And, and so there’s a huge amount of demand coming for construction workers to build the renewable transition. You know, I feel like the last decade we’ve spent our whole time thinking about what our targets should be. And now this decade, we’re really going to be focused on how we’re going to deliver all this stuff. Because we’ve got to, we’ve got to build an Olympics, we’ve got to finish this housing boom. And then we’ve got to tackle this, this renewables transition, which will I think, make the mining boom look like a bit of a footnote in the history of this state. That’s the sort of scale of investment that we’re looking at, for renewables in Queensland. And for the region’s, it’s a great opportunity, because our modelling shows that the vast majority of the labour that will be needed to build these renewable projects, low to middle skilled labour. So we’re talking tradespeople and we’re talking sort of unskilled labour, semi skilled labour. So it’s well within the reach of the workforce already in , n the region. So as a structural adjustment sort of story.

Gene Tunny  38:29

 This is really, really positive. Yeah, I have to have a look at your report rather than that’s a, that’s an extraordinary claim. I’m not denying it at all and not being negative about it. I just want to look at it. Because to think that it could be larger than mining when we had $70 billion over a few years invested in Gladstone. I mean, are. You remember that? Yeah, that boom, we had a construction boom, nearly 10 years ago now. It’s just incredible. But yeah, if renewables, I guess they want to get to what they, their aspiration is, then yeah, perhaps you do need to build that much. And then you have to ask, Well, okay. Will this actually happen? I know. I’m sceptical but yeah, let me read your report. I haven’t looked at it yet. So I can’t really ask any informed questions on that. Right. Okay. So just to try and wrap this up. So you’ve talked about the last 20 years. And we had COVID, we had the pandemic and we’ve got more people working from home, and potentially who could work remotely? Okay, we haven’t seen as much. We haven’t really seen a lot of huge numbers of people moving to the regions. Is that Is, that what is that? What is happening, that the cities are continuing to grow? That’s where the growth is. You expect this to continue over the next decade or so you don’t know. It’s too hard to say.

Robert Sobyra  39:56

No, I think that’s exactly what’s going to happen. I think let Left unchecked, these forces just accumulate over time. So the skilled cities just get more skilled over time, and the region’s will continue to fall away in terms of employment growth, you know, left unchecked, it’ll, it’ll probably reach some sort of, you know, happy level. But there will be this ongoing gap between the regions and the big cities. I mean, there’s no doubt that the fundamentals of Queensland as an economy is very, very strong, so we’ll continue to attract more employment growth, more population growth, and probably anywhere else in the country. But how that’s distributed across the landscape in Queensland will be very, very uneven. And if all we do is look at those aggregate outcomes, we’re going to miss some pretty important variations across space.

Gene Tunny  40:51

Yeah, exactly. And probably want to wrap up on these points, I may have signaled wanting to wrap up before but there’s some more stuff I want to talk about what’s been happening in the States and, and in the UK. So I had a look at the data for the US. So the World Bank data on the urban population in the US, it’s gone from 70% in 1960. And it’s now up at 83%, in 2021. Okay, so that it’s occurring there. So it does looks like maybe that’s, that’s not as extraordinary as what’s happened worldwide. But worldwide, you had people moving out a lot of people on the land in China or in India, or wherever that’s, but it’s still an upward trend. And I found some data from the office for science, the UK Government Office for science, that trend Dec 2021 urbanisation. And so that’s showing that England’s urban population is growing faster than its rural population. Urban has been growing 6.2% over 2011 to 2019, rural 5.2%. But what you see is, it’s all sort of going to London are a lot of it is in London, 27% out of London 19% growth rate that’s over 2001 to 2019. Cities overall. So cities overal, such as well, other cities other than London cities such as Liverpool, Manchester, Birmingham, that 16%, the town’s 11%. So you’ve got that divergence there in the UK? Is this something you? You’re looking at it as well? I mean, are you, your research? You’ve done this for Australia? But are you? Do you think your findings are relevant to these other countries? Are you thinking of extending your research to these other countries?

Robert Sobyra  42:44

Yeah, it’s a good question. There’s no doubt that divergence is a really common feature of advanced economies everywhere you look. Yeah, we observe it, whether or not my particular explanation of the sort of the job polarising logic of our economy at the moment and how we’re stripping out all those middle skill jobs. And that’s starving, the region’s of employment growth, whether that’s a key driver or a key mechanism in other contexts, remains to be seen. Definitely something I want to look at. But yeah, as far as I can tell, if the economic structures are similar, you should expect similar outcomes. And in this respect, they’re very similar across all advanced economies.

Gene Tunny  43:22

Yeah well, I was thinking about what’s happened in the US. There’s the NAFTA shock, and then there was China joining the WTO shock. And what that meant was it it meant that the US lost a lot of manufacturing jobs and maybe their middle skilled jobs in the heartland in, in the Midwest or in Ohio, and places like that. And that’s had an impact on Well, that’s, you know, had a huge, very negative impact on some of those regions, particularly since they don’t have as good of social security or public health system as we do in Australia or in the UK. And then you’ve got opioid addiction, and yeah, all sorts of problems. And this is possibly fueling the political trouble that you’ve got in the States. And, yeah, all sorts of bad results there. And I know that there was research by David Autor from MIT, he looked at this, I think, did.

Robert Sobyra  44:25

Yeah, he’s one of the first people to observe this, this polarising tendency. And yeah, one factor is the offshoring movement. Yeah, that you mentioned. Another one is just technological automation. So that sort of banking story, you know, the middle skilled clerks have been pushed out by the machines, and now the highest skill, you know, data scientists and whatever, sort of the key workforce for the banking sector. So there are two factors at play that are driving that underlying process. And yeah, in America, it’s very, very acute as you say that so infrastructures are very different in terms of the welfare net, and that sort of thing over there. So it’s a very bad outcome.

Gene Tunny  45:07

Yeah. And so part of this, we’ve talked about job polarisation and talked about divergence between cities and regions. And then in an implication of all of this is this, this must be part of the inequality story or inequality in income and wealth. Now, again, Australia, we’ve had, well, there’s a big argument about whether income inequality is increasing wealth inequality certainly is income inequality, less, less clear. But in the States, certainly that inequality is increased and possibly that is, due this divergence story is part of that. So yeah. Okay. Rob, any final thoughts before we wrap up? This has been great. I’ve really enjoyed the conversation. But any final thoughts?

Robert Sobyra  45:56

No, nothing from me. Appreciate the invitation. It’s been a great chat.

Gene Tunny  46:01

I’ve appreciated it, Rob. Yeah, it’s terrific. And yeah, just hope you can keep up the great research and yeah, hope to chat with you again soon.

Robert Sobyra  46:10

Let’s loop back and talk about renewable sometime. Absolutely. Okay. Thanks, Rob. Thanks, mate.

Gene Tunny  46:17

Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplored.com And we’ll aim to address them in a future episode. Thanks for listening. Till next week, goodbye.

Credits

Thanks to Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au

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