From Texas CEO magazine:

Jim Russell is an economic geographer. The job description of an economic geographer is not exactly part of the mainstream lexicon – economic geographers study the relationship between the economy and the movement of people. In San Antonio, economic geography means the relationship between economic growth and the recent in-migration of college educated people holding a bachelor’s or an advanced degree – more than Houston and more than Dallas. Unlike much of the rest of the country, San Antonio is rapidly gaining 25-plus-year-olds with college educations and it is happening fast. The change began in 2008; prior to then, when looking at top metros for attracting college-educated talent, San Antonio was nowhere to be found. After 2008, SA shows up at number four. What happened? The answers came at a Texas CEO Magazine Enlightened Speaker Series event in San Antonio held in conjunction with SA 2020 with research funded by the 80/20 Foundation.

Economic Cycles – The Background

Economic geographer and presenter Jim Russell began with a few lessons on how the economy expands and contracts, how jobs are created, how the population shifts and the massive trends that result.

Prior to the 20th Century, the U.S. had an agrarian economy. That was replaced by the manufacturing economy with Detroit as its center and the population moved from the rural South to the industrial North to work at companies like Ford. The manufacturing economy has shifted to the innovation economy with Silicon Valley as its center. At companies like Apple, the cost of manufacturing becomes irrelevant while the cost of innovation is where they make their bottom line and it’s what drives this economy. There is no longer a great migration of people concentrating in industrial cities, but rather there’s wealth and ideas because the innovation economy is a matter of knowledge and capital.

“When the economy is growing and expanding, that’s economic divergence, meaning there are a few winners and economic activity is concentrating in a few places,” said Russell. His example was Silicon Valley where the economic geography is diverging – a small group doing well and the rest of the country not doing as well. Once divergence peaks, contraction comes next, that’s economic convergence – meaning other places start catching up. Russell sees San Antonio catching up to Silicon Valley in the innovation economy; a key factor to trace that convergence is labor costs or talent costs. In a time of divergence or expansion, no one cares what talent costs because companies are making so much money they will pay whatever the talent market demands. Eventually salaries do matter because there’s more competition and when the economy diffuses, companies begin to question how they can cut costs and be more efficient. “When you start seeing cutting costs as the primary concern of that economic epoch, you’re seeing convergence,” noted Russell.

San Antonio has been in transitioning from the manufacturing economy to the innovation economy and is catching up to Silicon Valley. Now, Russell contends, there is a new economic epoch emerging called the talent economy and it’s an “ironic migration.”

Return Migration and Ironic Migration

The trend of return migration began in the suburban rings around cities. As parents did well in their two-degree households, they sent their children away to the best college they could get into. Once they finished school, the children left for big cities like Chicago and New York and these children of educated homes didn’t just go to big cities, they excelled. “At some point, perhaps for family issues or a desire to start a family, these people came home,” observed Russell. “I’m seeing this trend explode across the United States and there’s a major migration shift going on.” When they move back, they don’t move back to the suburbs, they have acquired a taste while away for urban neighborhoods. When they come back to San Antonio, shared Russell, they seek out the neighborhoods that remind them of D.C. or Brooklyn.

“What you’re seeing here is the change in 25-year-olds and older with at least a four-year degree. In the core where you saw population loss, like the center city, you’re now seeing people with college degrees moving in,” noted Russell. This trend is called ironic migration – while it looks like the core city has a population loss, rather, the return migration population is returning to the urban core. “This trend really began to pick up speed in San Antonio in 2008. We can see it and we can map it,” said Russell.

The Talent Economy

If manufacturing led to an innovation economy, is the next epoch the talent economy? Russell says it has begun and there are five cities that have the lead – four cities in Texas and Pittsburgh.

”Over the last five years, Pittsburgh has grown more jobs than Dallas – and that’s in absolute numbers,” said Russell. Why? The talent economy. What is it that would make a Rustbelt city like Pittsburgh produce world class talent and experience the same return migration San Antonio is experiencing?

Quite simply, it is talent – the kind of talent produced by CMU – Carnegie Mellon University. To get that kind of talent into their companies, instead of a firm in Silicon Valley fighting for Pittsburgh-produced talent with Austin, the research triangle or Seattle and Chicago, what do Google and Disney do? They move to CMU – they are on campus to get access to that talent.

“There is no more fighting,” says Russell, “they go to where the talent is produced.” Russell notes the economic paradigm has flipped. “You don’t have talent chasing jobs, instead, you have jobs going where the talent is produced,” he said. No longer is there an issue of being a “cool” city that attracts talent, but rather a city that produces talent. Russell hopes San Antonio is ready for the challenge.

Russell sees the innovation economy converging and the talent economy diverging. “There will be a few winners like Pittsburgh in terms of talent production, so this is a key time for a few cities to get ahead.” Plus, Silicon Valley has a major problem – it’s very good at talent attraction and horrid in talent production and it’s going to have to compete with the likes of the San Antonios that are ramping up. Soon Silicon Valley won’t be able to afford the cost of talent and they have no talent migration coming back to do big things because the region didn’t invest to produce talent. “Talent attraction is an innovation economy – converging. Return migration is talent production and that’s happening here, and it’s happening rapidly,” said Russell. “I suggest you need to think about that as the centerpiece of your economic development strategy.”

The Role of Higher Education

Graham Weston, Chairman of Rackspace, started the 80/20 Foundation which funded Russell’s research. “Going into it, I thought the data would show we were losing brain power and we were experiencing a brain drain,” Weston said. “As it turns out, San Antonio is a prosperous and exciting place.”

Rather than building from a declining foundation, Weston sees San Antonio building from strength. “Especially when considering all the other cities in the country – the ones that are struggling with unemployment, and we’re not; those struggling with foreclosures, which we’re not; ones that are struggling with keeping their young people and keeping their college educated children, and we are not,” observed Weston.

Of the top 100 metros in the U.S., San Antonio ranks as number six in brain gain – those over the age of 25 with a bachelor’s degree or advanced degree who have moved to the city. To realize the full potential of a talent economy, as Pittsburgh has done, San Antonio will need to produce talent. “It shows you how important our universities are and how the decades ahead are so important to rise to even greater promise. We have to have an educated population and this is an invitation to all the universities in town to up their game,” observed Weston.

Weston has a lot at stake in the brain gain – Rackspace hired about 800 employees in 2012 and tends to focus on recruiting people to San Antonio because Rackspace cannot fuel that growth purely from the San Antonio population. “What I’ve learned is,” said Weston, “the idea of return migration is a more powerful and better long term approach because we know when we find people in Silicon Valley, New York or D.C, if they have a tie to Texas there’s a very good chance we can recruit them.”

Weston said talent must be grown at home. “We can’t recruit our way to greatness.”

What challenges does that talent demand put on San Antonio?

What Do You Want To Be Famous For?

In answering a question from an attendee about universities developing talent, Weston noted when Google or an oil company moves to a campus, they are there not for general talent, but rather, for specialized talent. “I would love for our top universities here to be known for something. The question I have for UTSA, Trinity, or St. Mary’s or any of our local universities is, ‘What do you want to be famous for?’” Weston contends companies like Google will come to a campus to find computer science engineers, not for general university graduates, and San Antonio universities need to develop specializations to gain power.

Russell added that population growth or decline is a feature of the manufacturing economy and San Antonio should be interested in educational attainment rates, “So, focus on talent production and focus on how smart your workforce is.”

Conclusions

Weston sees San Antonio at the point of joining the ranks of big cities. “Cities like Houston have been big, great cities for hundreds of years,” he said. “We’ve been a big city for no more than 20 years, and we’re just now growing into our shoes.

“We can go from being a big, small town to being a great big city over the next 20 years and we have a great foundation to build on. Not many people get the opportunity to build a city, but that’s what’s going to happen here over the next 20 years,” said Weston.

For San Antonio and other Texas cities experiencing a brain gain, Russell asked these questions: “What do you want to do with it, and how to best leverage it? How can it benefit metro economic development? How will you grow new industry clusters and how can you become renowned for certain types of talent production and enhance more return migration?” He said there are no simple solutions.

Russell has seen what’s coming before. “When the buzz starts – when San Antonio embraces the brain gain, goes in the right direction on the talent economy and hipsters start to get wise to the neighborhood assets that are here – once the hipsters get wind of it – you’ll have to beat them away with a stick,” he said. San Antonio is one of the three big winners of the talent economy along with Pittsburgh and Louisville and the opportunity to unleash something positive is here.