Atlanta wins the gold medal for growth

Economics

One of the extraordinary things about the United States is its variety. Anyone who visits will be aware of that - the canyons of Arizona or Manhattan, the wilderness of Alaska or indeed the South Bronx. But the US also presents an astonishing variety from an economist's point of view, and a brief visit to what objectively is the fastest-growing region in the States, Atlanta, has made me wonder whether the way economists and policymakers look at the US economy is really sensible. We focus on the aggregates, for example what is happening to growth or inflation, for the entire country; we fail not just to see the much more interesting stories within that variety, but also to learn the appropriate lessons for other countries such as Britain.

Start with jobs. We think of the US economy as the best creator of employment in the developed world: people may criticise the quality of many of the jobs created, arguing that too many of these are low-skilled and low- wage, but no-one disputes the fact that by contrast to Europe, and even Japan, the US economy is wonderful at job creation. (Actually, the complaint that the jobs are low-skill is, to a large extent, misplaced, for most of the new permanent jobs are high-skill; it is the part-time jobs, often taken on by students adding to their qualifications, that are low-skilled. Thus low-skill jobs are being used to finance the upskilling of the labour force.)

You can see the results of the boom in Atlanta by driving through the suburbs to the north of the town. Everywhere the woods are being cleared and new, high-quality estates are springing up to house the new workers. Shopping malls are being extended, roads upgraded, new petrol stations opened. Elsewhere in the suburbs (and, to a very limited extent, downtown) shiny offices, including headquarters buildings, are being built for the string of incoming companies.

By the time the Olympics are over most television viewers will doubtless be heartily sick of hearing about Atlanta. There will surely be a fair measure of civic bombast mixed in with the Olympic coverage. But do not be put off by that, for the economic success story that the city wants to tell is a remarkable one.

Look at some numbers. Last year, 260 firms moved to Atlanta, 32 of which chose it for new national headquarters. More than 70 per cent of these new companies were in the service, wholesale or retail sectors, and only 14 per cent were in manufacturing. As for jobs, the totals are remarkable. Last year saw 87,800 net new jobs on top of nearly 98,000 the year before and nearly 90,000 the year before that.

However, not all the US is good at creating jobs. The place most business visitors start is New York and the economy there has been, to put it mildly, disappointing. A study by New York Federal Reserve Bank published in its April Current Issues newsletter, shows how badly the region suffered during the 1990s. The jobs performance of New York City, compared with that of the New Jersey region and the US as a whole, plus that of greater Atlanta, is shown in the graph on the left. As you can see, the pattern through the last recession was quite similar in that even Atlanta had a bad year in 1991. But whereas the rest of the country (in particular Atlanta) staged a sustained recovery in jobs, New York only managed to hold steady.

On the face of it this might appear to be thoroughly bad news for New York. If it can only add very slowly to its employment during five years when the US economy has grown very vigorously, what on earth will happen when the economy turns down?

There are, mercifully, several reasons to be more cheerful. For a start, there is the general forecast shown on the right from DRI/McGraw Hill for job creation through to the year 2000. Sure, Atlanta is at the top. (I picked it up from the Atlanta Chamber of Commerce!) But look down the list and there is New York City expected to add 162,000 jobs by the end of the century. Not wonderful, given the size of the economic base, but if, say, London were predicted to add that many jobs it would be seen as very cheering indeed.

It is better news still when you look at the structure of the jobs. New York has continued to lose manufacturing jobs through the early 1990s and will go on doing so. It also has lost government jobs, unlike the US as a whole, where the public sector has increased its employment, and it has lost jobs in the health and social services sectors, largely as a result of the squeeze on federal spending.

New York is gaining jobs in business and consumer services, adding these at a rate of around 3 per cent a year since the beginning of 1992. It has suffered from the decentralisation that is benefiting places like Atlanta but, despite that, it is still adding jobs. Finally, though job growth may be slow by US standards, pay is not. New data for the first half of last year shows that pay in the city's financial services sector was running 40 per cent up on 1994. Yes, 40 per cent.

What messages emerge from all this that might be relevant to Britain? I can see at least three.

The first is that the engine of job creation is private-sector services. It utterly dominates a growth zone such as Atlanta, of course, but it has also been the best performer in an area of relative decline such as New York. All the present discussion in the European Union about the need to reduce unemployment, with its emphasis on "active labour policies", training schemes, job creation schemes and the like, seems to me to ignore the lessons of America. In any business that is being unsuccessful, and Europe, particularly continental Europe, has been sadly unsuccessful at generating jobs, the usual action is to look at more successful competitors and see how they manage it. We do not need to buy the whole Atlanta success story to learn something from its job creation record. And it is interesting to see that broadly similar types of job are the likely saviour of a totally different region, New York, an area with more structural similarities to Europe than Atlanta.

The second is that an active civic culture can make a region attractive to the outside business community. Much of Atlanta's recent economic success is the result of its success in being a communications hub: its Hartsfield airport is the second largest in the world, after Chicago's O'Hare in terms of passenger numbers - just ahead of Heathrow, which is number three. It seems to me that competent, energetic cities can do an awful lot to pull up their economic performance, while badly run ones can do a great deal of damage to it.

A lesson for London as and when it gets a political voice, and a lesson for local government in general?

Third is the importance of momentum in economic affairs: once things start getting better, success will feed on success. The problems of managing growth (as in Atlanta) are vastly easier to handle than the grind of turning a region round (as in New York). But once you have achieved critical mass it is very hard to dislodge those activities.

It is just as interesting to see that financial services have stuck in New York as to see the magnetic attraction of Atlanta in drawing in new businesses. The obvious parallels in the UK are the way the City seems to be gaining market share in international financial services and the way the UK has drawn in overseas manufacturing investment. Now if we generate Atlanta's jobs ...

Hamish McRae was named a Columnist of the Year in last week's Periodical Publishers' Association awards.