Some old timers still blame a December 1988 Barron's article ("Phoenix Descending") for the collapse of the city's real-estate boom. This is fantasy, of course: The market caved in on its own, pulled down by too many hustles, too much overbuilding and the savings and loan scandal driven by local steward Charles H Keating and his pet senators. Now Rupert Murdoch's Dow Jones has tried to make amends with a Wall Street Journal story about Phoenix's "nascent real-estate rebound." Indeed, it "holds lessons for the rest of the country." Another fantasy?
The Journal continues:
Phoenix has found a viable formula. Low prices are igniting demand from first-time buyers and investors who are converting the homes to rentals. The local economy is on the upswing with several big employers like Amazon.com Inc. and Intel Corp. hiring again, which is further increasing demand for housing. And the region is benefiting from a surge of buyers from Canada who are using their favorable exchange rate to scoop up bargains in the desert.
Could this be true? Has long-suffering Phoenix "found a bottom" and is beginning a rebound? As Zhou Enlai may have said when asked about the significance of the French Revolution: It is too soon to say. What it means about the metropolitan area's real competitiveness and future is murkier still.
This hardly means the good old Growth Machine is sputtering back to life. The old model, where easy credit, liar loans, massive population increases and industrial-scale laying down of spec housing, strip malls and other development remains broken. An uptick in housing interest won't change it. More importantly, if it did, a return to business-as-usual would be the worst possible outcome for Phoenix's future.
The boosters are not interested in Phoenix's real competitive situation. "Positive" data and anecdotes are thrown out. Back in the "good old days," metro Phoenix made top lists, but only in job creation and housing starts — and the jobs being created paid low wages. Another trick is always to compare Phoenix and Arizona against their past performance. There's rarely useful context or an effort to benchmark against peer cities. For example, venture capital "is up." Or not: Arizona received $132 million in VC in 2011, according to Dow Jones Venturesource, vs. $166 million in recession-ridden 2010. But here's the context: Seattle companies netted $135 million — in the fourth quarter of last year, and not an especially strong performance. All of Washington state, similar in population to Arizona, received $542 million in VC in 2011. Ignorance is useful to the ruling elites and perpetuating the status quo.
Phoenix wasn't even in contention in the new Hot Spots report by the Economist's well-regarded Intelligence Unit. It examined 120 cities, using 31 indicators as well as in-depth interviews with business and political leaders. The goal was to produce a gold-standard benchmark of the world's most competitive cities. Only 15 out of a total of 60 global hot spots are in North America: New York, Washington, Chicago, Boston, Toronto, San Francisco, Vancouver, Los Angeles, Montréal, Houston, Dallas, Seattle, Philadelphia, Atlanta and Miami. These are the cities that make the grade to prosper and succeed in our new century of discontinuity. As the report states: "Size alone does not determine a city’s growth potential ... Competitiveness, however, is a holistic concept. While economic size and growth are important and necessary, several other factors determine a city’s overall competitiveness, including its business and regulatory environment, the quality of human capital and indeed the quality of life. These factors not only help a city sustain a high economic growth rate, but also create a stable and harmonious business and social environment." Does this penetrate the booster craniums in Phoenix?
No. Obviously. The Kooks never tried to "get" economic development. They undermined the old state Commerce Department at every turn, failing to give it the toolbox of incentives that have worked nationwide. Instead, they replaced it with a "public-private" Commerce Authority controlled by the Real Estate Industrial Complex. Its mandarins tell the press it "is offering what it believes to be the nation's largest pool of innovation grants — $3 million — to create more home-grown businesses, speed the commercialization of inventions and help existing small businesses grow and add jobs." But what does that mean? South Carolina promised Boeing some $900 million in incentives to land a 787 production line. Austin spent $4 million to attract an eBay support center. These attracted established, large-scale employers. And what about support for Science Foundation Arizona and the Phoenix Biosciences Campus, which would be real job/innovation machines? In reality, the Commerce Authority is simply a target-rich environment for investigative reporters, agreeing to pay its first director an astonishing $1.25 million. The Greater Phoenix Economic Council is toothless and now torn apart by the appetites of the East Valley and the west side, all to the detriment of Phoenix. It was only effective when first established, under the dynamic leadership of Ioanna Morfessis and backed by major corporate leaders, now all gone.
The results were on display with the "competition" to win a new Apple operations center. The center and its 3,600 jobs went to Austin instead, a city that already boasts an impressive tech ecosystem utterly lacking in metro Phoenix. Austin, which knows how to play the eco-devo game, is giving Apple $8.6 million among other incentives. Just peddling sunshine, land and lots of tilt-up spec buildings won't cut it. This reality is not new. I can't tell you how many times I was told in the 2000s that "Phoenix is in the running" for some big project, only to see it go elsewhere. Intel is nice, a legacy of real economic-development efforts and Craig Barrett's affection for the Valley. But ask a resident of Phoenix how easy it is to get a job there. As for Amazon, it is creating low-wage warehouse jobs controlled by the well-paid thousands of headquarters employees who will occupy the multiple skyscrapers being built out my window in downtown Seattle.
Thus, a headline in the Republic proclaims, "More Arizona startups taking root." But read on and you learn that just 7,272 Arizona corporations were started in 2011, a 33 percent decline from the number registered during 2007. A banker notes, "New Mexico often has more venture activity than the state of Arizona, yet the population of the Phoenix area is two times the population of New Mexico." Small firms and startups, don't create many jobs. Also, a report by the Business Journal in the 2000s showed that Phoenix actually has much fewer startups per 100,000 people that many smaller cities, much less Phoenix's peers. In any event, the typical startup or tech venture is a rich-man's toy in north Scottsdale or Gilbert, meant to be quickly sold off, not built into the next Amazon, much less have a civic connection to creating a great city.
Then there's the continuing drag of political extremism, which shouts, "Global companies, don't invest here!" One new example is an anti-contraception bill that is the most extreme in the country. As Daily Kos comments, "How many times do we have to say this? Arizona's economy is in the shitter, education was cut a half-billion dollars last year, and 100,000 were just kicked off the state's Medicaid program. And this is what they spend their time on: restrict, restrict, restrict access to birth control, and if we can't restrict it anymore, then let's threaten workers with losing their job."
I don't write this to "make Phoenicians feel bad" or because "I hate Arizona." I do it so people get a clue. The old economic model, such as it was, failed to create good jobs and great companies even when it was performing at its best. It did create very costly externalities and great wealth for a few of the real-estate boyz. Now it's a new world, where slow growth and hyper-competition is the norm, with smart, livable cities taking the prize. A bunch of cheap houses, a few months of delightful weather and championship golf are not an adequate economic strategy for a major metropolitan area.