In my previous article, on the Bioscience Labor Market Analysis in St. Louis, I concurred with the report’s findings that an emphasis on manufacturing is a factor in making the St. Louis region unique, saying, “This is can indeed be a source of competitive strength.” 

“Locating research and development in close proximity to production and manufacturing can build an ecosystem effect in which R&D becomes more market- and production-focused. As a result, ideation can be more focused and the product development lifecycle shortened.”

Unfortunately, this happy outcome is not guaranteed. And I say that not to cast stones! Another possibility is that many of the higher-end jobs, such as R&D, become outsourced to other regions with a concomitant regional over representation in commodity-level skills, such as various assemblers and packaging staff.

Manufacturing Takes Advantage of Lower Regional Labor Costs

In the parlance of commercial outsourcing, locating manufacturing and commodity-skills acquisition primarily to take advantage of a lower regional labor costs is often referred to as a labor arbitrage strategy. Again, however, this often turns out to be a long-term good news story, with the regional market eventually benefitting from ecosystem effects in which high-end skills also come to be represented as capital — financial, physical, and intellectual — is gradually accumulated.

Once more, though, this is a happy outcome that does not necessarily follow. Examples in which specialization in manufacturing did not turn out well include Detroit in the 1970’s and 1980’s as well as much of the industrial midwest in about the same time period.

Economic Impact of Megaregions

One way to describe and characterize clusters of cities and related economic and cultural production is that of megaregions. Richard Florida, writing in The Atlantic’s City Lab (now owned by Bloomberg), identifies some forty such regions around the world and identifies them as a contiguous, lighted area with one or more major cities or metropolitan areas and that produce at least $100 billion in annual economic output.

Florida further identifies a dozen such megaregions in North America, which span the United States, Canada, and Mexico. Other scholars, such as those writing for the Regional Plan Association, use the following to characterize a megaregion:

• Environmental systems and topography
• Infrastructure systems
• Economic linkages
• Settlement patterns and land usage
• Shared culture and history

St. Louis finds itself in what is sometimes referred to as the Great Lakes Megaregion, an area the other principal cities of which are Chicago (Illinois), Detroit (Michigan), Pittsburgh (Pennsylvania), Cleveland (Ohio), Youngstown (Ohio), Minneapolis – St. Paul (Minnesota), and Indianapolis (Indiana).

The Hollowing Out of the Great Lakes Megaregion

Within this region, the traditional exports have been the outputs of heavy industry, such as automobiles and trucks, steel and other metals, tires and rubber products, commodity chemicals, etc. As these “smokestack” industries were supplanted by newer, professional service exports (such as engineering, architecture, etc.) and also by knowledge and intellectual-capital intensive industries such as software, algorithms, and bioscience, the Great Lakes Megaregion under-performed.

Research by the Regional Plan Association (America 2050 Research Seminar, March 29-31, 2009) notes that St. Louis, Detroit, and Youngstown lost 92,000, 281,000, and 30,000 manufacturing jobs, respectively, all large percentages of their manufacturing and employment bases. Further, in the RPA research cited above, 43 percent of all cities in the Great Lakes Megaregion were identified as underperforming (as of 2010); these cities were then home to 39 percent of the megaregion’s people.

Other research by Edward Feser and Geoffrey Hewings suggests that over-specialization within a few select industries, especially automobiles, combined with a primarily intra-industry regional trade may have resulted in a “hollowing out” of the Great Lakes Megaregion’s economy, making it less resilient to external shocks. These shocks consist of both rival products as well as a diminution in demand for the primary export products.

Overspecialization Is Not Antifragile

It seems reasonable that this hollowing out was brought about by a diminished capacity to innovate secondary products. Put somewhat differently, over-specialization reduced the complexity of the regional economy. With fewer overlapping niches and less variation, the system became increasingly brittle and frangible.

Equally importantly, there was a commoditization of skills. The need to innovate, ideate, and create new things became less important than the need to execute well-defined processes.

The skills most in demand by the regional economy became those of “exploiters”, or “executors”, not “explorers”. It is a reasonable supposition that following well-defined processes, while essential for the production of some goods, may require less information and knowhow, including the ability to form coalitions with experts from around the world, than innovating and ideating new things.

Over the next few articles, I will examine available data in an attempt to verify our supposition. Before that, however, allow me to present a short introduction to economic complexity.