Sustainablog

This blog will cover some news items related to Sustainability: Corporate Social Responsibility, Stewardship, Environmental management, etc.

29.4.05

'Shell will be the better for its trauma': the industry has to take the issue of environmental change much more seriously.

'Shell will be the better for its trauma'
The Sunday Telegraph, 17 April 2005 - Lord Oxburgh, who retires this year
as chairman of Shell, is the antithesis of the stereotypical Big Oil man.
At a conference in Barcelona on Tuesday, he told a room full of some of
the world's most powerful energy executives that the industry had to take
the issue of environmental change much more seriously.
Oxburgh has little time for his industry peers who refuse to acknowledge
the dangers of climate change. In an interview with The Sunday Telegraph,
he says: "I have a feeling that in parts of the world, some business
interests may see the acknowledgment of global warming as fatally damaging
to their business interests. I see this as extraordinary. "I think that
global warming and the changing energy situation we find ourselves in,
represent fantastic business opportunities. It is only a threat to those
who insist on doing business with their heads in the sand."
Oxburgh (or Ron, as he prefers to be called) is a distinguished academic
and former chief scientific adviser to the Ministry of Defence. It is easy
to spot where his jibes are aimed.
ExxonMobil heads a group of companies that have repeatedly pooh-poohed
global warming. The US oil colossus spends just $10m ( pounds 5.3m) a year
on research aimed at developing alternatives to fossil fuels. This
compares with more than $100m a year spent at BP and $1bn at Shell since
2003.
Last year, Lee Raymond, the chief executive of Exxon, said that Europe
needed a "reality check" in its commitment to meeting the carbon emission
reductions outlined in the Kyoto Agreement on climate change.
But Oxburgh says a refusal to tackle global warming is bad commerce and
lousy ethics. "There is a different group who accept the science but think
it is pointless to try and do anything about it," he says. "That is at
least a rational point of view and you can have a debate about that."
His response to that faction goes like this: "It is pretty clear that the
effects of global warming are having an impact already. The developed
world can insulate itself to a degree from the more extreme consequences
of global warming. "It is developing countries that will suffer the most.
There are hundreds of millions of people in the world who for instance,
depend on monsoons for their livelihood, or live in coastal areas
vulnerable to rising sea levels. "So simply to say global warming has gone
too far and we can't do anything about it, even if it is a rational
decision, is not a morally defensible one. We have to try."
So will Oxburgh become a full time eco-warrior when he retires from Shell
in June? "I actually have no plans and no idea what I am going to do. I
have had various approaches, but I have not said yes to them. I have
worked in the world of business, in the civil service and in academia, so
I would like to do something to take advantage of that experience. "I do
though have realistic environmental concerns. We have to keep the planet a
reasonable place to live for our successors."
Oxburgh is, however, optimistic about the future and the ability of
technology to satisfy our future energy needs. Indeed, we may never
actually run out of fossil fuels, on his scenario. "Today is a time of
profound change in energy industries as a whole," he says. "We are moving
into a new world, partly driven by the price of fossil fuel, partly driven
by environmental concerns, and partly driven by the spectre of running out
of fossil fuels. "We are going to find, on a 50-year timescale, much
easier ways of meeting energy needs than extracting fossil fuels from the
ground. We may not get anywhere near exhausting fossil fuel resources, as
a combination of environmental and price pressures and new technologies
make alternatives much more attractive."
Abundant energy is all around us; the challenge is storing it. "In a funny
way, battery technology will be key to a great many of our transport and
energy problems."
So what sort of Shell will Oxburgh leave? The group has some way to go
before it regains the trust of investors, following the furore sparked by
last year's disclosures about its massive overstatement of oil reserves.
Despite being fined by regulators and being sued for billions in the US by
shareholders, Oxburgh believes the episode will make Shell a stronger
company over the long run. "It seems an extraordinary thing to say, but I
think that, in five years time, Shell will be an enormously better company
for going through the trauma of 2003 and 2004 than if it had not. I have
to say there was a degree of complacency at Shell. And in recent years it
failed to see changes in the outside world."
Copyright 2005 The Telegraph Group Limited

Forest Stewardship Council Pegs Good-Wood Market at $5 Billion

Forest Stewardship Council Pegs Good-Wood Market at $5 Billion
GreenBiz.com, 26 April 2005 - The Forest Stewardship Council (FSC), an
independent international organization established to promote responsible
management of the world's forests through standards setting,
certification, and labeling of forest products, has estimated the size of
the global market in FSC-certified products to in excess of $5 billion.
FSC revised its market estimate after conducting a global survey of
FSC-certified companies during March and April 2005. Previously, it had
estimated the size of the market to be in excess of between $3 billion.
The survey of 250 certificate holders represented about 5% of
FSC-certified companies. These companies produced more than $500 million
in FSC-certified products annually from a total of approximately $10
billion in annual sales of all products.
The estimated size of the FSC global market is supported by other recent
surveys including: the United Kingdom Ethical Purchasing Index that tracks
the size of the market for ethical products using sales data from nine
major retailers. Last year their sales of FSC-certified products in the
U.K. exceeded $1.7 billion. A recent survey by FSC Netherlands showed that
FSC now held approximately 12% of the Dutch timber market valued at
approximately $420 million.
FSC has seen continued growth in the market for FSC-certified products in
Europe, North America, Asia and Latin America. This growth has resulted in
a 25% increase in FSC Chain of Custody certificates for each of the past
two years and a doubling of hectares of forest certified to FSC standards
in the same period. The survey was designed to identify supply and demand
issues in the FSC system. It found that demand for FSC-certified products
was ahead of supply in hardwood markets. Companies completing the survey
reported demand exceeding supply by at least ten million cubic metres of
round wood hardwood. This demand is mainly being generated in Europe and
North America. Given the sample size, the underlying demand for
FSC-certified hardwood appears strong.
On the other hand, there has been strong growth in certification of
European and North American temperate and boreal forests in recent years.
As a result, the building and contraction sector has good potential to
increase the uptake of FSC-certified products. Respondents felt there was
a need to raise awareness of the FSC brand generally in key markets. FSC
is responding to this challenge through its national offices and in
partnership with supplier companies in the building and construction
sector as well as the pulp and paper sector. FSC has a range of programs
and is working closely with environmentally and socially responsible
companies.
The survey results were discussed with FSC accredited certification bodies
and responsible pulp and paper companies who met this week at the FSC
Global Pulp and Paper Forum in Bonn and FSC National Initiatives.

Rescuing environmentalism: Market forces could prove the environment's bestfriend—if only greens could learn to love them

Rescuing environmentalism
Apr 21st 2005
From The Economist print edition

Market forces could prove the environment's best friend—if only greens
could learn to love them

Get article background
“THE environmental movement's foundational concepts, its method for
framing legislative proposals, and its very institutions are outmoded.
Today environmentalism is just another special interest.” Those damning
words come not from any industry lobby or right-wing think-tank. They are
drawn from “The Death of Environmentalism”, an influential essay published
recently by two greens with impeccable credentials. They claim that
environmental groups are politically adrift and dreadfully out of touch.
They are right. In America, greens have suffered a string of defeats on
high-profile issues. They are losing the battle to prevent oil drilling in
Alaska's wild lands, and have failed to spark the public's imagination
over global warming. Even the stridently ungreen George Bush has failed to
galvanise the environmental movement. The solution, argue many elders of
the sect, is to step back from day-to-day politics and policies and
“energise” ordinary punters with talk of global-warming calamities and a
radical “vision of the future commensurate with the magnitude of the
crisis”.
Europe's green groups, while politically stronger, are also starting to
lose their way intellectually. Consider, for example, their invocation of
the woolly “precautionary principle” to demonise any complex technology
(next-generation nuclear plants, say, or genetically modified crops) that
they do not like the look of. A more sensible green analysis of nuclear
power would weigh its (very high) economic costs and (fairly low) safety
risks against the important benefit of generating electricity with no
greenhouse-gas emissions.

Small victories and bigger defeats
The coming into force of the UN's Kyoto protocol on climate change might
seem a victory for Europe's greens, but it actually masks a larger
failure. The most promising aspect of the treaty—its innovative use of
market-based instruments such as carbon-emissions trading—was resisted
tooth and nail by Europe's greens. With courageous exceptions, American
green groups also remain deeply suspicious of market forces.
If environmental groups continue to reject pragmatic solutions and instead
drift toward Utopian (or dystopian) visions of the future, they will lose
the battle of ideas. And that would be a pity, for the world would benefit
from having a thoughtful green movement. It would also be ironic, because
far-reaching advances are already under way in the management of the
world's natural resources—changes that add up to a different kind of green
revolution. This could yet save the greens (as well as doing the planet a
world of good).
“Mandate, regulate, litigate.” That has been the green mantra. And it
explains the world's top-down, command-and-control approach to
environmental policymaking. Slowly, this is changing. Yesterday's failed
hopes, today's heavy costs and tomorrow's demanding ambitions have been
driving public policy quietly towards market-based approaches. One example
lies in the assignment of property rights over “commons”, such as
fisheries, that are abused because they belong at once to everyone and no
one. Where tradable fishing quotas have been issued, the result has been a
drop in over-fishing. Emissions trading is also taking off. America led
the way with its sulphur-dioxide trading scheme, and today the EU is
pioneering carbon-dioxide trading with the (albeit still controversial)
goal of slowing down climate change.
These, however, are obvious targets. What is really intriguing are efforts
to value previously ignored “ecological services”, both basic ones such as
water filtration and flood prevention, and luxuries such as preserving
wildlife. At the same time, advances in environmental science are making
those valuation studies more accurate. Market mechanisms can then be
employed to achieve these goals at the lowest cost. Today, countries from
Panama to Papua New Guinea are investigating ways to price nature in this
way (see article).

Rachel Carson meets Adam Smith
If this new green revolution is to succeed, however, three things must
happen. The most important is that prices must be set correctly. The best
way to do this is through liquid markets, as in the case of emissions
trading. Here, politics merely sets the goal. How that goal is achieved is
up to the traders.
A proper price, however, requires proper information. So the second goal
must be to provide it. The tendency to regard the environment as a “free
good” must be tempered with an understanding of what it does for humanity
and how. Thanks to the recent Millennium Ecosystem Assessment and the
World Bank's annual “Little Green Data Book” (released this week), that is
happening. More work is needed, but thanks to technologies such as
satellite observation, computing and the internet, green accounting is
getting cheaper and easier.
Which leads naturally to the third goal, the embrace of cost-benefit
analysis. At this, greens roll their eyes, complaining that it reduces
nature to dollars and cents. In one sense, they are right. Some things in
nature are irreplaceable—literally priceless. Even so, it is essential to
consider trade-offs when analysing almost all green problems. The marginal
cost of removing the last 5% of a given pollutant is often far higher than
removing the first 5% or even 50%: for public policy to ignore such facts
would be inexcusable.
If governments invest seriously in green data acquisition and
co-ordination, they will no longer be flying blind. And by advocating
data-based, analytically rigorous policies rather than pious appeals to
“save the planet”, the green movement could overcome the scepticism of the
ordinary voter. It might even move from the fringes of politics to the
middle ground where most voters reside.
Whether the big environmental groups join or not, the next green
revolution is already under way. Rachel Carson, the crusading journalist
who inspired greens in the 1950s and 60s, is joining hands with Adam
Smith, the hero of free-marketeers. The world may yet leapfrog from the
dark ages of clumsy, costly, command-and-control regulations to an
enlightened age of informed, innovative, incentive-based greenery.

Big Chinese companies put environment protection high on agenda: survey

Big Chinese companies put environment protection high on agenda: survey
Xinhua News Agency, 21 April 2005 - Many of China's biggest companies are
intent on improving their environmental standards and practices, according
to a survey by World Wildlife Fund (WWF), the global conservation
organization.
According to the survey, all the Chinese companies participating in the
survey said protecting the environment was essential, with more than half
indicating that it was part of their company's core values.
"The survey shows a significant group of Chinese companies are more
environmentally aware than they are often portrayed," said Peng Lei, WWF
Trade and Investment Program officer.
Sixty-one out of 182 Chinese companies responded WWF's survey, with 50 of
them ranking among China's top 100 businesses in 2002 such as China
Petroleum and China Telecom from various fields including energy
resources, IT, finance and telecommunications.
The survey showed 22 percent of respondents are implementing tougher
environmental standards than legally required, with 13 percent calling for
even stricter mandatory rules, which are related mainly to carbon dioxide
emissions, pollution and using energy efficient technologies.
Eighty-five percent of the surveyed said that there is a need for stronger
rules for environmental reporting, transparency and monitoring for large
companies and only two percent thought the opposite.
Traditional Chinese philosophical concepts like "union of nature and man"
are found among eighty-five percent of respondents to be helpful to build
a more environmentally friendly atmosphere.
"There is a need to let the world know that there exists leadership among
Chinese companies in a time where so much attention is given to the
laggards," said Dennis Pamlin, WWF's global policy advisor.
"If we support these leaders China could emerge as a strong country that
can provide solutions for many of not only China's environmental problems,
but also the world's," he said.
While urging firms in the EU, Japan and the United States to adopt
policies to support progressive business in China, he also called on the
Chinese government to offer financial incentives to the leading companies
and enhance law enforcement as 39 percent surveyed said "many" or "very
many" break the environmental protection law.
He said WWF will help Chinese companies to further improve environmental
protection awareness and expand export business of sustainable goods.

Plans for a big new wind farm highlight a schism among environmentalists

Fell-fight
Apr 21st 2005
From The Economist print edition

Plans for a big new wind farm highlight a schism among environmentalists
RENEWABLE energy is supposed to be the environmentalists' darling, but
proposals for a big new wind-power development at Whinash, in Cumbria,
have divided globally-minded greenies from their locally-sensitive
cousins. The first group think the new turbines are necessary to combat
climate change. The second says that the windmills would destroy a
valuable landscape and damage the Cumbrian economy.
In the green corner supporting the development stand Friends of the Earth
and Greenpeace. In the other green corner are the Campaign to Protect
Rural England, the Cumbria Tourist Board and the Wildlife Trust, whose
president, David Bellamy, has threatened to chain himself to one of the
giant windmills in protest, if they are built.
Both sides make their cases on environmental grounds. The Wildlife Trust
points out that the turbines will be built atop an area of blanket bog, a
rare habitat that is protected under Cumbria's Biodiversity Action Plan.
The concrete foundations that the turbines stand on and the access roads
necessary to build and maintain them will, it says, destroy large parts of
a rare ecosystem.
Opposing greens are unmoved. They say that the area is environmentally
damaged anyway, thanks to drainage and over-grazing, and that the new wind
farms would have only a minor impact. In any case, says Tony Juniper of
Friends of the Earth, “the biggest threat to rare habitats is climate
change itself.”
Kyle Blue, chairman of the No Whinash Wind Farm Committee, agrees that
climate change is a worry, but is not sure about windmills. “The more I
look at it,” he says, “the more the evidence seems to point to nuclear
power as the answer.”
Greenery aside, the Cumbrian Tourist Board dislikes the economics of the
plan: it frets that the giant turbines will drive away tourists. Again, Mr
Juniper disagrees: “when I'm out walking, I quite like looking at wind
turbines,” he muses.
Similar arguments have erupted around the country. The need for a strong,
steady breeze means that many of the best sites for wind farms are just
the sort of wild and windswept uplands that rural campaigners want to
preserve.
Doug Parr, chief scientist at Greenpeace, says that one solution might be
to build the turbines out at sea and out of sight. But Chalmerston Wind
Power, the company behind the Whinash development, reckons that the
government would have to provide extra subsidies before it would consider
building offshore. Meanwhile, both sides are waiting to see which flavour
of greenery goes down best with the public inquiry into the project (whose
conclusions the government may well ignore—as is so often the way with
these things).

The need for wider horizons

The need for wider horizons
Financial Times, 18 April 2005 - After graduation next month, I will be
stepping down after 10 years as a business school dean.
During my tenure, a number of global events have influenced my thinking
about the future of business schools. There was the Asian financial
crisis; the large-scale anti-globalisation protests in Seattle; the
worldwide internet bubble and its aftermath; and a series of shocking
business scandals that undermined trust in chief executive officers
worldwide.
As if this were not enough, then came the intense focus on corporate
governance; the heinous terrorist attacks of September 11 2001 that forced
CEOs to rethink geopolitical realities; and, most recently, the rise of
China and India, and the fundamental changes they are bringing to world
markets. All the while, there was a quantum increase in global financial
integration, trade and cross-border mergers.
At least one big question preoccupies me regarding the relationship of
these events to formal business education: given the accelerating pace and
deepening complexity of globalisation, how can business schools do a
better job of producing leaders who are effective in the global market
place?
When it comes to MBA programmes, it is impressive how many faculty have
broadened the global scope of their research and teaching and how many
schools are building campuses abroad or engaging in global alliances with
their foreign counterparts.
There is still a long way to go, however. It often appears to me that
globalisation is a kind of fad at business schools. You have to be seen as
addressing it, and there are many ways to hype your efforts: put the
adjective "international" before a course in strategy or marketing. Make
sure that you have a lot of students from outside your country. Mount some
special programmes for foreign executives. Conduct courses in other
countries via the internet. Often, it seems, there is more sizzle than
steak.
None of this is damaging, but I doubt that most faculties get to the heart
of what is necessary for their students eventually to be great global
leaders. Too often students are taught about the past rather than being
given the wherewithal to think ahead. In a rapidly evolving global economy
this is a serious problem. But the big, fundamental questions need to be
put on the table and debated more vigorously in research and in
classrooms.
What, for example, will be the shape and character of truly global
companies a decade or two from now? How can CEOs and their boards oversee
increasingly far-flung global corporate Goliaths at the same time that new
corporate governance standards require them to take more direct
responsibility and assume legal liability for virtually everything their
companies are doing?
What will it take for companies to prosper in emerging markets, the arena
of highest growth in the future but also of substantial political and
cultural obstacles? There are dozens of real world questions like these
that get short shrift in research and in curriculums.
To raise these issues is to raise the question of the minimum time it
would take business schools to provide a solid global business education.
It may be heresy, but I think that given the standard requirements alone -
the fundamentals of accounting, finance, strategy, marketing, operations,
organisational behaviour, for example, as well as the important emphasis
on ethics, governance, entrepreneurialism and leadership - even two years
is not enough time to cover all that would be necessary for a thorough
education in busi ness. Certainly a one-year programme, as is found in
Europe and elsewhere outside the US, is too short to do justice to the
challenge.
I do not know what the future holds, given how impatient most MBA students
are to get a job, but if the market moves towards a shorter rather than
longer curriculum, I would not be surprised to see the MBA wither as a
degree of any value.
In any event, I believe that business schools could at least become far
more accomplished in educating those who are well past the MBA stage in
global leadership, including immersing them in the all-important issues
where business and society overlap.
This, too, will not be easy. The sad fact is that business schools are
becoming businesses themselves as much, if not more, than real educational
establishments. They cater to their alumni with a variety of narrowly
focused executive education programmes designed primarily to earn income.
But I am hard pressed to identify any, including my own, that have made
significant contributions to the biggest policy challenges that senior
executives face in conjunction with other parts of society.
For example, how should tomorrow's CEO balance the bottom line with the
broader social role that companies are being asked to play all over the
world? How can leaders create and manage a truly diverse multicultural
workforce? What kind of education and training do our leaders need to face
the growing number of painful ethical issues that arise at the
intersection of business and technology?
In wrestling with these sorts of issue, business schools have been
bystanders more than leaders. Rarely do they effectively use their
substantial convening power to bring together leaders from diverse
sectors. Rarely do they issue anything approaching a public white paper
that could provoke important dialogue among the many different
constituencies. In fact, at a time when business has become so central to
the great issues of the day, it is hard to identify any business schools
that have made a serious contribution to public policy.
Winston Churchill, Britain's second world war prime minister, once said:
"Out of intense complexities, intense simplicities emerge." Amid all the
cross currents that business schools are swimming in today, I am leaving
my job with this one optimistic thought: many business schools are teeming
with intellect, experience and entrepreneurial energy. But relative to
their potential, they have defined their horizons much too narrowly.
For MBA students, for more senior executives and for the market-oriented
society that is emerging in every corner of the globe, they can deliver
much more. And the world would be better off for it.
The writer is dean of the Yale School of Management

Controversy Incorporated: Companies that address the social concerns surrounding contentious markets may well find the effort rewarding.

Controversy Incorporated
Companies that address the social concerns surrounding contentious markets
may well find the effort rewarding.
David Cogman and Jeremy M. Oppenheim
The McKinsey Quarterly, 2002 Number 4

Milton Friedman once famously said that "the business of business is
business."1 Today, however, the search for growth increasingly takes
companies into controversial areas in which the rules of the game can't be
stated so neatly. Companies developing new high-growth opportunities in
fields from technology to education to economic development must often
navigate highly public ethical and social concerns and overcome restraints
far more subtle than those encountered in standard business practice or
law. Increasing numbers of large corporations thus find themselves caught
between two seemingly contradictory goals: satisfying the investor's
expectations for progressive earnings growth and the consumer's growing
demand for social responsibility.
Companies have become more socially responsible primarily because apparent
irresponsibility can carry a high price (see sidebar, "A force to be
reckoned with"). Although many companies now spend significant sums of
money to comply with their own codes of ethical conduct, most view these
expenditures only as an essential cost of doing business, not as an
investment that will provide a return. For some of these companies,
however, this spending may well be a source of growth, since many of
today's most exciting opportunities lie in controversial areas such as
gene therapy, the private provision of pensions, and products and services
targeted at low-income consumers in poor countries. These opportunities
are large and mostly untapped, and many companies want to open them up.
But people are often suspicious of any private-sector interest in
contentious areas of this kind, and public debate rages over how they
should be developed, if at all.
Corporations have to be recognized as socially responsible simply to gain
access to these debates. To influence the outcome, however, it will be
necessary to do more than just check boxes on a corporate-responsibility
scorecard; unless companies can understand, engage with, and respond to
the interests of all parties that have an interest in a contentious
business opportunity, they are unlikely to win a society's permission to
explore it. Without that permission, they will never convert the
opportunity into a sustainable and profitable market.
Contentious attractions
Ethical considerations might appear to clash with emerging business
opportunities primarily in four areas: the exploitation of new
technologies, the movement of activities from the public to the private
sector, entry into the world's developing markets, and the exploration of
such legally contestable markets as gambling (exhibit).

Exploiting new technologies
In recent decades, promising new developments, notably in biotechnology
and information technology, have frequently been accompanied by debates
about ethics. Take biotechnology: R&D into human therapies based on it is
growing almost twice as quickly as R&D into conventional
pharmaceuticals—and leading to 40 percent of all new products. By the end
of this decade, biotechnology is expected to generate revenues of around
$34 billion (equivalent to 15 percent of today's total drug market) from
health care and $25 billion from agrochemicals. And though existing
biotechnology applications can compete for only 2 percent of today's $1.2
trillion market in industrial chemicals, this proportion is projected to
rise to almost a third by the end of the decade, when the total market
will be worth an estimated $1.6 trillion.
Yet there is concern about the moral legitimacy of the genetic research on
which biotechnology depends. Consider the case of deCODE Genetics, a
company in Iceland that has used a genealogical database of the country's
population—one of the world's most genetically homogeneous—to conduct
research into the inherited causes of common diseases. So far, the company
has found links between at least 40 of them and 350 genes. The legislation
that gave deCODE access to this data required Icelanders to opt out if
they didn't want their records examined. Critics of the study claimed that
this legislation violated the human rights of the Icelanders, especially
since it didn't require the company to tell participants exactly how the
data would be used. Ignoring such concerns may not only lead to further
argument but also limit the ability of biotech companies to carry out
valuable and much-needed research.
Moving from the public to the private sector
Governments the world over increasingly use private-sector companies to
provide public services such as education, health care, pensions, and
transport. While this approach may improve efficiency and raise standards
of service, it also generates criticism of the profits that private
providers can earn, particularly for services, such as welfare benefits
and housing, that affect the poorer segments of society.
Public education in the United States provides an example. The country
spends more than $350 billion of public funds on primary and secondary
education, which is widely thought to have fallen behind public education
in other developed countries. Privatizing the provision of education is a
possible solution. At present, only 4 percent of the spending goes to
schools run for profit by private companies, but that proportion is
expected to grow by 13 percent a year. At the end of the present decade,
around 10 percent of all primary and secondary schools will probably be
under for-profit management, suggesting a market worth almost $80 billion.
Executives attempting to enter the debate over privatized education face
suspicion and outright hostility
Nonetheless, the battle for privatized education run by companies seeking
to make a profit is far from won. Business executives attempting to enter
the debate—such as venture capitalist John Doerr and the convicted
financier-turned-philanthropist Michael Milken—have met with suspicion
and, often, outright hostility. Companies operating in this field face a
continual battle to prove to skeptical teachers, parents, and
administrators that a for-profit company can and will act in the best
interest of students. This skepticism won't go away overnight.
Entering developing markets
Developing countries offer attractive opportunities both as markets and as
sources of raw materials and productive capacity. But interest groups
frequently criticize corporations active in these regions for failing to
meet the environmental, labor, competitive, and marketing standards
required of them at home.
Take health care in India, which illustrates both the scale of the
opportunities in the emerging world and the ethical quandaries that
accompany them. India's population will surpass China's in the near
future. Even now, India is a popular location for the manufacture of drugs
used in developed markets, but the country itself has health care
expenditures of only $23 a head, of which $7 goes to drugs. The United
States, the members of the European Union, and Japan spend, on average,
more than 100 times that amount on health care per capita, and 50 times
more on drugs.
The common causes of death in India—such as infection and perinatal
problems—can be treated easily and cheaply. But most people there are so
poor that it is difficult for companies to ask them to pay for medical
help without seeming exploitative. Since 1991, the World Bank has
supported projects in six Indian states to improve access to better health
care, especially for the poor, in part by helping state-run health care
providers outsource more of their services to the private sector. But this
approach has attracted criticism from local activists opposed to the idea
that local people should have to pay anything at all for health care.2
Exploring legally contestable markets
Social norms define what each society considers legal, but they can change
quickly: activities that once were against the law—such as euthanasia and
the possession of cannabis (marijuana)—are now accepted in several
European states. Black markets in illegal activities are often sizable, so
sudden changes in the law can create substantial legitimate markets
overnight. A black market in human trafficking, for example, has been
created by tough immigration restrictions in Europe, but as its need for
labor increases, they may be relaxed, thus opening up an opportunity for
legitimate organizations seeking to place human resources.
Similarly, gambling, viewed in some times and places as a source of
corruption, is increasingly seen as a legitimate form of entertainment;
indeed, in several unlikely localities, including conservative states in
the southern United States, it has proved to be an effective source of
jobs and tax revenue. As gambling has become more respectable, large
corporations, including several household names, have entered the
business. During the 1990s, the industry more than doubled in size, and it
is currently worth more than $60 billion.
Earning the right to operate profitably
Not all companies will want to commercialize contentious activities. But
those that do need, first, to persuade everyone involved that a private
company has the moral right to undertake the activity in question and,
second, to establish a profit norm acceptable to all stakeholders,
including investors. Winning both battles can be difficult, and companies
will have to adopt different tactics for each activity and geographical
market. Yet some common principles can help those companies engage
sensitively and proactively in such debates.
Take a long-term view of market design
Economic theory declares that a well-functioning market respects the
property rights of its participants, matches consumers with producers at
efficient prices, minimizes transaction costs, and ensures that contracts
are enforced. In most private-sector markets—for instance, those for
cement and crude oil—well-established laws, regulations, and practices
ensure these conditions. But in contentious markets, such as the one for
gene therapy, some or all of this infrastructure doesn't exist, so it must
be developed by participants and regulators.3
Private companies entering these markets therefore need to decide how they
should be structured. How will value be created? How will it be shared?
How will risks be allocated? What regulatory or contractual rules must be
put in place? Companies may naturally be tempted to lobby for a
structure—opaque, with limited price discovery, high barriers to entry,
and an inefficient allocation of risk—that favors their interests over
those of other participants. Would that approach serve a company's best
long-term interests? Probably not; over time, its inherent unfairness
would most likely prompt governments and activists to intervene. Greedy
participants may risk losing markets altogether.
Consider the contrast between the privatized markets for energy and rail
transport in the United Kingdom. In the decade following the privatization
of electricity supply, a substantial fall in the unit cost of energy
benefited both consumers and producers. In part, this achievement was the
result of a thoughtful market design, which separated supply and
distribution through a pooling system, and of a strong regulatory
framework. Together, these arrangements managed supply and demand
efficiently over the medium term.
Compare that positive experience with the fate of the United Kingdom's
privatized rail industry, in which relationships among stakeholders were
structured poorly. The result was a public outcry over the declining
standard of service and a widespread perception in the mass media that
some of the new rail enterprises were extracting "excessive" profits.
Safety problems and cost overruns attracted a storm of negative publicity;
amid battles with regulators and politicians, the infrastructure company,
Railtrack, went into bankruptcy and was returned to government control.
Had the market structure been more carefully designed at the outset, the
cost of Railtrack's collapse might have been avoided, and British
consumers might now be enjoying a higher standard of rail travel.
Learn to work with—not around—stakeholders
To propose an acceptable structure for any market, companies must
understand the needs of its other participants, some of whom may distrust
the private sector profoundly. In these circumstances, companies often try
to neutralize their opponents with gifts and grand gestures, which can
appear to be cynical and often backfire. The winning way may be
counterintuitive: view the opposition not as a threat but as a source of
information about the other market participants' needs and concerns. With
that information in hand, companies can develop business models that
address them.
One example is Cargill's initial entry into the market for sunflower seeds
in India. Starting in the early 1990s, this activity generated bitter
political opposition, and Cargill offices in that country were set on fire
twice. The company's response was to teach Indian farmers how to improve
their crop yields. As a result, the productivity of the local farmers
increased by more than 50 percent. Once Cargill had provided them with a
palpable economic benefit, they understood that the company aspired to be
their partner rather than their exploiter.4
This collaborative strategy stands in stark contrast to Monsanto's effort
to create markets for genetically modified seeds. The company was bitterly
opposed by farmers in developing countries who feared becoming dependent
on a single supplier of expensive seed. Instead of accommodating these
concerns, Monsanto responded with an effort to publicize scientific
evidence about the benefits of genetically modified seeds, but few of the
farmers believed that the scientists supporting the company's claims were
truly independent. Arguably, Monsanto lost the opportunity by pressing its
claim too hard, too soon. Buffeted by a steady backlash in developing and
developed markets alike, the company lost almost half of its market
capitalization in the year to September 1999, and a few months later it
was acquired.
Understand your social assets
If large numbers of people are convinced that a company's core operations
harm society, changing that negative perception by spending more money on
corporate-responsibility programs can be an uphill struggle. However, many
companies—even those with flawed reputations—already contribute a great
deal to society through their day-to-day activities; they just don't get
any credit. Identifying and publicizing these inherent social assets could
help such companies build trust among stakeholders.
Take McDonald's. Although the company makes large, well-publicized social
investments in fields as diverse as animal welfare, conservation,
education, and health care, it is still, to its critics, the archetype of
global corporate exploitation. Yet McDonald's is also a company that
introduces many young people to new skills and gives them the first job of
their careers. It could claim that as one of the world's largest employers
of unskilled youth, it contributes enormous social value just by doing
business as usual. If this value were more widely appreciated, it might
even help McDonald's enter markets more controversial than fast food.
Other companies also have largely untapped social assets. Although (or
perhaps because) the oil majors are the number-one enemy of environmental
groups such as Greenpeace, these companies now have unrivaled expertise in
minimizing the ecological impact of industrial operations. This asset is
evidence of responsible commerce that can also help a company decide which
markets to enter. Opponents of moves to legalize cannabis, for example,
fear that the tobacco giants would ruthlessly exploit the opportunity to
sell it over the counter. This may be a battle the tobacco companies can
never win, however. A more likely candidate to distribute the drug, if and
when it becomes legal, could be suppliers of over-the-counter
pharmaceuticals, whose business already depends on a guaranteed commitment
to responsible health care.
Rethink leadership and governance
Forward-looking companies, sensitive to the new ground rules of
controversial business areas, are opening up to—rather than fighting—their
opponents. Corporations, such as those in oil and pharmaceuticals, that
have years of experience collaborating with governments have a head start
in training employees to work in contentious areas: these companies also
regularly expose managers to a range of critical opinion by assigning them
to work with nongovernmental organizations and by taking part in
conferences.
In some cases, such companies even seek out critics to learn from them:
the leading UK environmental activist Jonathon Porritt, for instance,
speaks at and advises on training programs for BP executives. Indeed, such
relationships can even work in both directions, for BP's chief executive
serves on the board of Conservation International, a global conservation
group. This kind of "cross-pollination" not only gives companies insights
into the concerns of the not-for-profit sector but also gives
not-for-profits accurate information about the companies they deal with.
The free exchange of information makes the two sides better able to reach
acceptable compromises on questions such as the way the oil majors might
exploit reserves in virgin territory.
Finally, to involve consumers and communities, ventures in contentious
markets usually require governance structures independent of the corporate
parents.5 Bolder companies may even experiment with new forms of
governance that try to combine the strengths of the corporation with the
social awareness of the not-for-profits—an approach that has already been
used by a growing number of community-development financial institutions
providing capital to businesses in disadvantaged areas that conventional
banks can't or won't serve.6 One example is Bridges Community Ventures, a
UK venture fund founded by the venture capital firms Apax and 3i and by
entrepreneur Tom Singh and financed by leading private-sector investors
and the UK government. Bridges is a for-profit entity but invests solely
in underdeveloped areas in England to stimulate growth and create jobs.
Companies willing and able to address the social concerns surrounding
contentious markets will find that, in many cases, the rewards are more
than worthwhile. Moreover, the participation of companies that know how to
tackle such issues sensitively and effectively should improve the chances
of addressing some of the world's most intractable problems. And it is
increasingly difficult to imagine how such complex, large-scale tasks can
be taken on without the private sector's involvement.
A force to be reckoned with
Two decades ago, the activists who demanded that companies practice a
higher standard of social responsibility were scattered throughout a
disparate collection of organizations, each focused, for the most part, on
a single issue. No longer. Today's lobbyists are a well-coordinated and
effective force. And they have teeth. In a recent poll of about 25,000
people in 23 countries, 60 percent of the respondents said they judged a
company on its social record, 40 percent took a negative view of companies
they felt were not socially responsible, and 90 percent wanted companies
to focus on more than just profitability.1
Meanwhile, the activist lobby has learned how to form unlikely alliances
across the political spectrum—with people ranging from conservative
protectionists to Left-wing trade unionists—and to mobilize public opinion
on emotional issues through the skillful use of the mass media. Many
multinational companies have learned from experience how effective these
tactics can be. In particular, extractive industries such as petroleum
have come under relentless pressure from environmental activists: Shell
lost considerable market share in Germany in 1995 after activists
persuaded consumers that its proposed disposal of the Brent Spar oil
platform, in the North Sea, would harm the environment. Even though the UK
government and independent scientists had endorsed the company's proposal
as the one that would cause the least damage, motorists boycotted Shell's
service stations, and some were vandalized by activists.
These days, moreover, it isn't just consumers who are clamoring for
change; shareholders too are making their voices heard. Prominent pension
funds have begun to question companies on social issues, and socially
responsible investing, though still a relatively small-scale phenomenon,
is growing rapidly. In the United States, the assets of what are called
ethical funds grew from $682 billion in 1995 to $2.16 trillion in 1999,
and they now make up approximately 13 percent of investments under
management in the United States, which is up from 9 percent in 1997. It is
no wonder that so many corporations are beginning to take their social
responsibilities seriously.
Notes
1From the 1999 Millennium Poll, conducted by Environics, the Prince of
Wales International Business Leaders Forum, and The Conference Board.
Return to reference
About the Authors
David Cogman is a consultant and Jeremy Oppenheim is a principal in
McKinsey's London office.
Notes
1Milton Friedman, "The social responsibility of business is to increase
its profits," New York Times Magazine, September 13, 1970.
2See the World Wide Web sites of Global Action, Corpwatch, and the World
Bank.
3For an analysis of the problems of market design, see John McMillan,
Reinventing the Bazaar: The Natural History of Markets, New York: Norton,
2002.
4For an account of these developments, see Stuart L. Hart and C. K.
Prahalad, Strategies for the Bottom of the Pyramid: Creating Sustainable
Development, July 2000.
5See Rajat Dhawan, Chris Dorian, Rajat Gupta, and Sasi K. Sunkara, "
Connecting the unconnected," The McKinsey Quarterly, 2001 Number 4 special
edition: Emerging markets, pp. 61–70; and Amie Batson and Matthias M.
Bekier, "Vaccines where they're needed," The McKinsey Quarterly, 2001
Number 4 special edition: Emerging markets, pp. 103–12.
6For more details, see the UK Social Investment Forum report Community
Development Finance Institutions: A New Financial Instrument for Social,
Economic, and Physical Renewal, February 2002.
Site Map | Terms of Use | Privacy Policy | mckinsey.com
Copyright © 1992-2005 McKinsey & Company, Inc.

Environmental group calls Steve Jobs a 'bad apple'

Environmental group calls Steve Jobs a 'bad apple'
Lisa Roner in Dallas
26 Apr 05

Apple's chief executive Steve Jobs defended the computer company's
environmental record in response to a list of complaints circulated by a
Silicon Valley activist group at the annual shareholders meeting
It was an otherwise uneventful Apple annual meeting last week.
Shareholders re-elected all members of the board and passed a performance
bonus plan, amendments to the employee stock option plan and ratification
of independent auditors KPMG. However, the meeting turned into a veritable
fist-a-cuffs between Apple's chief executive Steve Jobs and environmental
activists.

Twelve members of the Silicon Valley Toxics Coalition (SVTC) picketed the
shareholders meeting at Apple's Cupertino headquarters in California. The
protesters were dressed to look like the company's popular iPod digital
music player and flung themselves into trashcans, holding signs with
messages such as "From iPod to iWaste".

During a question and answer session, Jobs fielded a question from a
spokeswoman for Green Century Funds, an environmentally oriented mutual
fund, on Apple's recycling programmes.

After thanking the shareholder for her question, Jobs launched into a
lengthy response to a series of concerns on recycling and other
environmental issues raised by SVTC in a flyer it was circulating.

Going after the iPod

Jobs said that SVTC, which led a similar protest outside the Macworld
conference in San Francisco in January, is spreading false information
about Apple's policies and using the popularity of the iPod to gain
publicity for itself. The group, Jobs said, told the Kansas City Star last
month that it "picked the iPod to go after because it's the hippest thing
around".

According to observers, Jobs was particularly frustrated at Apple being
singled out as "irresponsible" by the group and for criticism over its
peers. He reportedly calling the tactic "bullshit".

Gopal Dayaneni, programme director for SVTC, told reporters that Jobs had
refused to meet with the group and was not taking the problem seriously.

During the meeting, however, Jobs addressed each of the groups' claims
point-by-point and said Apple has a strong environmental policy and track
record.

SVTC is asking Apple to drop its current $30 recycling fee and collect
unwanted computers at no cost. The group has suggested that PC makers,
such as Dell and HP, recycle unwanted systems for free.

Jobs answered by saying that Dell charges $20 and HP charges $40, leaving
Apple squarely in the middle on recycling fees. The cost of recycling,
Jobs said, should be shared among manufacturers, users, retailers and
others who benefit from Apple's products.

Dell and HP, however, both temporarily cut the cost of their take-back
programmes in recognition of Earth Day almost exactly as Jobs spoke.

Jobs said Apple has taken back more than 1,500 tons of equipment in the
past year and that 90% of the waste collected was able to be recycled.

He also denied accusations by SVTC that Apple has been lobbying against
state legislation in Minnesota and Maine that requires companies to
establish take-back programmes. He refuted claims that Apple uses prison
or forced labour in its recycling programmes.

Getting the lead out

And in response to allegations that it ships waste overseas, Jobs said
Apple only ships ground up material used to make recycled plastics,
something he called a "good thing".

Jobs also denied a claim by the SVTC that the iPod is a "time-bomb for our
health and environment because of the toxic materials that will either go
into incinerators or landfills".

He said the claim was "just inexcusable" and that the only toxic material
in the iPod is a small amount of lead and that the company is "working to
get that out". Jobs said Apple has led the industry away from cathode-ray
tube computer monitors that contain even more lead than the iPod.

SVTC also alleges that the iPod's batteries are "environmentally
irresponsible" because they are not easily user-serviceable and said the
$99 fee charged by Apple for their replacement encourages improper
disposal.

Jobs said Apple's battery and take-back programmes actually discourage
users from disposing of batteries or the units in landfills and that, when
Apple handles battery replacements, depleted batteries are disposed of
properly.

SVTC's Dayaneni told the San Francisco Chronicle that he did not want to
comment on each point raised by Jobs, but that he would like to debate the
issues in person with him.

"He either could be an informed leader or go down in history as a bad
apple," Dayaneni said.

Jobs said that SVTC has "good taste in picking the iPod, but that doesn't
make their false statements true".

Disposal complications

Proper take-back and disposal is complicated by a wide range of state and
federal legislation, Stampp Corbin, chief executive of Retrobox, an
equipment refurbishment company, told CIO Today.

Corbin said there are more than 50 pieces of legislation covering how to
deal with computer waste, leading more companies to investigate better
disposal and refurbishment.

"No one wants the landfills to be piled up with equipment," he said.

The Greening of the Creative Class?

The Greening of the Creative Class?
A Newly Electric Green – Sustainable Energy, Resources and Design
Richard Florida's The Rise of the Creative Class made a bit of a splash
last year. His argument -- that "cultural creatives" (an intentionally
broad social-economic category) were most attracted to diverse, tolerant
urban environments -- resonated with many, particularly those who were
encompassed by his "creative class" definition. Florida asserted that the
American locations driving the boom of the late 1990s, as well as what we
here call the "Tech Bloom" of the 2000s, had particular social-cultural
elements in common: relative population density; lively artistic
communities; diverse cultures; an embrace of (or at least strong tolerance
for) gay communities; and a multiplicity of universities. Urban centers
that encouraged contact and connections across a wide array of cultures
tended to stimulate the new ideas underlying the digital economy.
Florida's argument is controversial, to say the least. His definition of
cultural creatives includes professional categories other sociologists
might otherwise omit, and it remains to be seen whether his assertions
about the connection between creative workers and economic growth will
hold true over the long run. Still, his basic argument -- that knowledge
and media work represent key engines of economic growth, and environments
supportive of cultural and intellectual diversity are attractive to these
kinds of industries -- does seem to capture some of the underlying drivers
of the current state of American society.
In his research, Florida does not pay much attention to the environmental
attitude of his creative class, other than lumping it into "lifestyle."
But while reading an article in yesterday's Christian Science Monitor -- "
In Portland, living the green American dream" -- it struck me that there
seems to be significant overlap between the creative class professionals
and the rapidly growing circle of people embracing green/sustainable
design in their lives. People who seek out urban environments with a
combination of diverse stimuli and dense connections increasingly also are
the people looking for material surroundings with a combination of smart
design and high efficiency. The creative class is taking on a distinctly
Viridian shade of green.
This can be illustrated by comparing some lists: Richard Florida's list of
top Creative Index cities (an amalgam of a variety of factors); a
recently-released listing of top cities for hybrid car purchases; and the
current list of cities with the most LEED-certified buildings. In all
cases, "city" means greater metropolitan area (e.g, San Francisco includes
Oakland and San Jose). Bold represents cities showing up on all three
lists; italics represents cities on 2 of the 3 lists.
Florida's Top 15 Creative Index cities (City, Index score):
1. San Francisco 1057
2. Austin 1028
3. San Diego 1015
3. Boston 1015
5. Seattle 1008
6. Chapel Hill 996
7. Houston 980
8. Washington 964
9. New York 962
10. Dallas 960
10. Minneapolis 960
12. Los Angeles 942
14. Atlanta 940
14. Denver 940
15. Chicago 935
Top 15 cities for hybrids (City, No. of hybrids registered in 2004, %
growth over hybrids registered in 2003):
1. Los Angeles 10,399 102.0%
2. San Francisco Bay Area 8,051 94.0%
3. Washington DC 6,473 52.0%
4. New York 3.779 111.9%
5. Seattle-Tacoma 2,857 67.3%
6. Boston 2,720 84.9%
7. Sacramento 2,182 108.6%
8. Chicago 2,122 71.8%
9. San Diego 1,851 134.3%
10. Philadelphia 1,770 83.2%
11. Portland, OR 1,767 103.3%
12. Baltimore 1,514 79.8%
13. Denver 1,432 76.1%
14. Phoenix 1,217 82.5%
15. Dallas Ft Worth 1,076 82.1%
Top 13 urban regions for "green buildings" (City, LEED certified
projects):
1. Seattle 14
2. Portland 10
3. San Francisco 9
4. Los Angeles 9
5. Atlanta 6
6. Pittsburgh 6
7. Sacramento 5
8. Washington 4
9. Denver 4
10. Arlington 3
10. Baltimore 3
10. Boston 3

(15 additional cities have 2 LEED certified buildings)
The three lists are not identical by any means, but the amount of overlap
is notable. 11 of the top 15 Creative Index cities are among the top
cities for hybrid cars, LEED certified buildings, or both. Boston, Denver,
Los Angeles, San Francisco, Seattle and Washington DC show up on all three
lists; the cities that show up on two of the three include some
predictable entries (Portland, New York) and some surprises (Dalls,
Sacramento). Austin, #2 on Florida's list, actually does better than this
comparison suggests, as it's #16 on the hybrid car list and among the
cities with 2 LEED buildings, just missing the cut-off.
There's certainly an economic aspect to this line-up. Hybrids are more
expensive than equivalent gas-only cars, and while there's plenty of
evidence that LEED-compliance is not costly, the public perception is
often that green buildings cost more. To some degree, the Creative Index
cities may generally have more hybrids and LEED buildings than others
because they can afford them. But it's hard to deny the cultural element
-- the connection between centers of innovation and centers of sustainable
design is clear.
So what does this suggest?
First and foremost, it suggests that the next wave of economic innovation
may well come from those locations with the greatest support for
sustainable technologies and infrastructure. While some of this will come
from existing "creative class" residents pushing for greener buildings,
transit and industries in their home communities, some will come from
innovators and entrepreneurs seeking out appealing hubs of urban
sustainability, moving to take advantage of green material surroundings
already in evidence. The creative class is demonstrably a mobile class,
willing to shift geographic locations as readily as they shift places of
employment.
Cities or regions wishing to become innovation centers, then, should
consider ways to adopt more sustainable urban planning. If the people most
involved in generating economic growth are in fact starting to pay
increasing attention to their environmental footprints, the up-front
investments in better public transit, support for solar panels and green
roofs, even a shift to lighter-color street pavement will pay off
handsomely.
It also suggests that we're on the verge of seeing an explosion of
sustainable design products and services across the economic spectrum.
Purchasing decisions of the creative class -- and marketing crafted by the
creatives themselves -- can be more influential than their raw numbers
might suggest. Hybrid cars are a good example. The number of hybrid cars
on the road is, in absolute terms, still very small. While over 83,000
hybrid vehicles were registered in the US in 2004, that represented only a
small fraction of all cars registered. Yet hybrids already have a
significant cultural weight, appearing in movies and television, in
newspapers and magazines, and talked up by politicians and academics. As a
result, the decision-makers at GM and Daimler-Chrysler, who had originally
only paid attention to the numbers, are now scrambling to get hybrids on
the market as quickly as possible.
The greening of the creative class will not, in and of itself, be
sufficient to transform the American cultural landscape into a
low-footprint, high-efficiency society. On its own, it's a leading
indicator for the success of the "baseline scenario." But even if it's not
actively transformative, it's catalytic. A society already familiar with
the style and virtues of sustainable dwellings, design and transit is one
more willing to consider even bigger changes. A green creative class is
not enough to get us to where we need to be, but it certainly points us in
the right direction

The Rise of the Creative Class
Why cities without gays and rock bands are losing the economic development
race.
By Richard Florida

Purchase Richard Florida's related book
As I walked across the campus of Pittsburgh's Carnegie Mellon University
one delightful spring day, I came upon a table filled with young people
chatting and enjoying the spectacular weather. Several had identical blue
T-shirts with "Trilogy@CMU" written across them---Trilogy being an Austin,
Texas-based software company with a reputation for recruiting our top
students. I walked over to the table. "Are you guys here to recruit?" I
asked. "No, absolutely not," they replied adamantly. "We're not
recruiters. We're just hangin' out, playing a little Frisbee with our
friends." How interesting, I thought. They've come to campus on a workday,
all the way from Austin, just to hang out with some new friends.
I noticed one member of the group sitting slouched over on the grass,
dressed in a tank top. This young man had spiked multi-colored hair,
full-body tattoos, and multiple piercings in his ears. An obvious slacker,
I thought, probably in a band. "So what is your story?" I asked. "Hey man,
I just signed on with these guys." In fact, as I would later learn, he was
a gifted student who had inked the highest-paying deal of any graduating
student in the history of his department, right at that table on the
grass, with the recruiters who do not "recruit."
What a change from my own college days, just a little more than 20 years
ago, when students would put on their dressiest clothes and carefully hide
any counterculture tendencies to prove that they could fit in with the
company. Today, apparently, it's the company trying to fit in with the
students. In fact, Trilogy had wined and dined him over margarita parties
in Pittsburgh and flown him to Austin for private parties in hip
nightspots and aboard company boats. When I called the people who had
recruited him to ask why, they answered, "That's easy. We wanted him
because he's a rock star."

The Creativity Index
(Guide to Charts)
The key to economic growth lies not just in the ability to attract the
creative class, but to translate that underlying advantage into creative
economic outcomes in the form of new ideas, new high-tech businesses and
regional growth. To better gauge these capabilities, I developed a new
measure called the Creativity Index (column 1). The Creativity Index is a
mix of four equally weighted factors: the creative class share of the
workforce (column 2 shows the percentage; column 3 ranks cities
accordingly); high-tech industry, using the Milken Institute's widely
accepted Tech Pole Index, which I refer to as the High-Tech Index (column
4); innovation, measured as patents per capita (column 5); and diversity,
measured by the Gay Index, a reasonable proxy for an area's openness to
different kinds of people and ideas (column 6). This composite indicator
is a better measure of a region's underlying creative capabilities than
the simple measure of the creative class, because it reflects the joint
effects of its concentration and of innovative economic outcomes. The
Creativity Index is thus my baseline indicator of a region's overall
standing in the creative economy and I offer it as a barometer of a
region's longer run economic potential. The following tables present my
creativity index ranking for the top 10 and bottom 10 metropolitan areas,
grouped into three size categories (large, medium-sized and small
cities/regions).--Richard Florida

While I was interested in the change in corporate recruiting strategy,
something even bigger struck me. Here was another example of a talented
young person leaving Pittsburgh. Clearly, my adopted hometown has a huge
number of assets. Carnegie Mellon is one of the world's leading centers
for research in information technology. The University of Pittsburgh,
right down the street from our campus, has a world-class medical center.
Pittsburgh attracts hundreds of millions of dollars per year in university
research funding and is the sixth-largest center for college and
university students on a per capita basis in the country. Moreover, this
is hardly a cultural backwater. The city is home to three major sports
franchises, renowned museums and cultural venues, a spectacular network of
urban parks, fantastic industrial-age architecture, and great urban
neighborhoods with an abundance of charming yet affordable housing. It is
a friendly city, defined by strong communities and a strong sense of
pride. In the 1986 Rand McNally survey, Pittsburgh was ranked "America's
Most Livable City," and has continued to score high on such lists ever
since.
Yet Pittsburgh's economy continues to putter along in a middling flat-line
pattern. Both the core city and the surrounding metropolitan area lost
population in the 2000 census. And those bright young university people
keep leaving. Most of Carnegie Mellon's prominent alumni of recent
years---like Vinod Khosla, perhaps the best known of Silicon Valley's
venture capitalists, and Rick Rashid, head of research and development at
Microsoft---went elsewhere to make their marks. Pitt's vaunted medical
center, where Jonas Salk created his polio vaccine and the world's premier
organ-transplant program was started, has inspired only a handful of
entrepreneurs to build biotech companies in Pittsburgh.
Over the years, I have seen the community try just about everything
possible to remake itself so as to attract and retain talented young
people, and I was personally involved in many of these efforts. Pittsburgh
has launched a multitude of programs to diversify the region's economy
away from heavy industry into high technology. It has rebuilt its downtown
virtually from scratch, invested in a new airport, and developed a massive
new sports complex for the Pirates and the Steelers. But nothing, it
seemed, could stem the tide of people and new companies leaving the
region.
I asked the young man with the spiked hair why he was going to a smaller
city in the middle of Texas, a place with a small airport and no
professional sports teams, without a major symphony, ballet, opera, or art
museum comparable to Pittsburgh's. The company is excellent, he told me.
There are also terrific people and the work is challenging. But the
clincher, he said, is that, "It's in Austin!" There are lots of young
people, he went on to explain, and a tremendous amount to do: a thriving
music scene, ethnic and cultural diversity, fabulous outdoor recreation,
and great nightlife. Though he had several good job offers from Pittsburgh
high-tech firms and knew the city well, he said he felt the city lacked
the lifestyle options, cultural diversity, and tolerant attitude that
would make it attractive to him. As he summed it up: "How would I fit in
here?"
This young man and his lifestyle proclivities represent a profound new
force in the economy and life of America. He is a member of what I call
the creative class: a fast-growing, highly educated, and well-paid segment
of the workforce on whose efforts corporate profits and economic growth
increasingly depend. Members of the creative class do a wide variety of
work in a wide variety of industries---from technology to entertainment,
journalism to finance, high-end manufacturing to the arts. They do not
consciously think of themselves as a class. Yet they share a common ethos
that values creativity, individuality, difference, and merit.

Large Cities Creativity Rankings
Rankings of 49 metro areas reporting populations over 1 million in the
2000 Census
Top Ten Cities

City
Creativity
Index
%Creative
Workers
Creative
Rank
High-Tech
Rank
Innovation
Rank
Diversity
Rank
1. San Francisco
1057
34.8
5
1
2
1
2. Austin
1028
36.4
4
11
3
16
3. San Diego
1015
32.1
15
12
7
3
3. Boston
1015
38.0
3
2
6
22
5. Seattle
1008
32.7
9
3
12
8
6. Chapel Hill
996
38.2
2
14
4
28
7. Houston
980
32.5
10
16
16
10
8. Washington
964
38.4
1
5
30
12
9. New York
962
32.3
12
13
24
14
10. Dallas
960
30.2
23
6
17
9
10. Minneapolis
960
33.9
7
21
5
29

Bottom Ten Cities

City
Creativity
Index
%Creative
Workers
Creative
Rank
High-Tech
Rank
Innovation
Rank
Diversity
Rank
49. Memphis
530
24.8
47
48
42
41
48. Norfolk, VA
555
28.4
36
35
49
47
47. Las Vegas
561
18.5
49
42
47
5
46. Buffalo
609
28.9
33
40
27
49
45. Louisville
622
26.5
46
46
39
36
44. Grand Rapids
639
24.3
48
43
23
38
43. Oklahoma City
668
29.4
29
41
43
39
42. New Orleans
668
27.5
42
45
48
13
41. Greensboro
697
27.3
44
33
35
35
40. Providence
698
27.6
41
44
34
33

More and more businesses understand that ethos and are making the
adaptations necessary to attract and retain creative class
employees---everything from relaxed dress codes, flexible schedules, and
new work rules in the office to hiring recruiters who throw Frisbees. Most
civic leaders, however, have failed to understand that what is true for
corporations is also true for cities and regions: Places that succeed in
attracting and retaining creative class people prosper; those that fail
don't.
Stuck in old paradigms of economic development, cities like Buffalo, New
Orleans, and Louisville struggled in the 1980s and 1990s to become the
next "Silicon Somewhere" by building generic high-tech office parks or
subsidizing professional sports teams. Yet they lost members of the
creative class, and their economic dynamism, to places like Austin,
Boston, Washington, D.C. and Seattle---places more tolerant, diverse, and
open to creativity. Because of this migration of the creative class, a new
social and economic geography is emerging in America, one that does not
correspond to old categories like East Coast versus West Coast or Sunbelt
versus Frostbelt. Rather, it is more like the class divisions that have
increasingly separated Americans by income and neighborhood, extended into
the realm of city and region.
The Creative Secretary
The distinguishing characteristic of the creative class is that its
members engage in work whose function is to "create meaningful new forms."
The super- creative core of this new class includes scientists and
engineers, university professors, poets and novelists, artists,
entertainers, actors, designers, and architects, as well as the "thought
leadership" of modern society: nonfiction writers, editors, cultural
figures, think-tank researchers, analysts, and other opinion-makers.
Members of this super-creative core produce new forms or designs that are
readily transferable and broadly useful---such as designing a product that
can be widely made, sold and used; coming up with a theorem or strategy
that can be applied in many cases; or composing music that can be
performed again and again.
Beyond this core group, the creative class also includes "creative
professionals" who work in a wide range of knowledge-intensive industries
such as high-tech sectors, financial services, the legal and healthcare
professions, and business management. These people engage in creative
problem-solving, drawing on complex bodies of knowledge to solve specific
problems. Doing so typically requires a high degree of formal education
and thus a high level of human capital. People who do this kind of work
may sometimes come up with methods or products that turn out to be widely
useful, but it's not part of the basic job description. What they are
required to do regularly is think on their own. They apply or combine
standard approaches in unique ways to fit the situation, exercise a great
deal of judgment, perhaps try something radically new from time to time.
Much the same is true of the growing number of technicians and others who
apply complex bodies of knowledge to working with physical materials. In
fields such as medicine and scientific research, technicians are taking on
increased responsibility to interpret their work and make decisions,
blurring the old distinction between white-collar work (done by
decisionmakers) and blue-collar work (done by those who follow orders).
They acquire their own arcane bodies of knowledge and develop their own
unique ways of doing the job. Another example is the secretary in today's
pared-down offices. In many cases this person not only takes on a host of
tasks once performed by a large secretarial staff, but becomes a true
office manager---channeling flows of information, devising and setting up
new systems, often making key decisions on the fly. These people
contribute more than intelligence or computer skills. They add creative
value. Everywhere we look, creativity is increasingly valued. Firms and
organizations value it for the results that it can produce and individuals
value it as a route to self-expression and job satisfaction. Bottom line:
As creativity becomes more valued, the creative class grows.

Medium-Size Cities Creativity Rankings
Rankings of 32 metro areas reporting populations 500,000 to 1 million in
the 2000 Census
Top Ten Cities

City
Creativity
Index
%Creative
Workers
Creative
Rank
High-Tech
Rank
Innovation
Rank
Diversity
Rank
1. Albuquerque
965
32.2
2
1
7
1
2. Albany, NY
932
33.7
1
12
2
4
3. Tuscon, AZ
853
28.4
17
2
6
5
4. Allentown, PA
801
28.7
16
13
3
14
5. Dayton, OH
766
30.1
8
8
5
24
6. Colorado Springs
756
29.9
10
5
1
30
7. Harrisburg, PA
751
29.8
11
6
13
20
8. Little Rock, AR
740
30.8
4
10
21
11
9. Birmingham, AL
722
30.7
6
7
26
10
10. Tulsa, OK
721
28.7
15
9
15
18

Bottom Ten Cities

City
Creativity
Index
%Creative
Workers
Creative
Rank
High-Tech
Rank
Innovation
Rank
Diversity
Rank
32. Youngstown, OH
253
23.8
32
32
24
32
31. Scranton, PA
400
24.7
28
23
23
31
30. McAllen, TX
451
27.8
18
31
32
9
29. Stockton, CA
459
24.1
30
29
28
7
28. El Paso, TX
464
27.0
23
27
31
17
27. Fresno, CA
516
25.1
27
24
30
2
26. Bakersfield, CA
531
27.8
18
22
27
19
25. Fort Wayne, IN
569
25.4
26
17
8
26
24. Springfield, MA
577
29.7
13
30
20
22
23. Honolulu, HI
580
27.2
21
14
29
6

The creative class now includes some 38.3 million Americans, roughly 30
percent of the entire U.S. workforce---up from just 10 percent at the turn
of the 20th century and less than 20 percent as recently as 1980. The
creative class has considerable economic power. In 1999, the average
salary for a member of the creative class was nearly $50,000 ($48,752),
compared to roughly $28,000 for a working-class member and $22,000 for a
service-class worker.
Not surprisingly, regions that have large numbers of creative class
members are also some of the most affluent and growing.
The New Geography of Class
Different classes of people have long sorted themselves into neighborhoods
within a city or region. But now we find a large-scale re-sorting of
people among cities and regions nationwide, with some regions becoming
centers of the creative class while others are composed of larger shares
of working-class or service-class people. To some extent this has always
been true. For instance, there have always been artistic and cultural
communities like Greenwich Village, college towns like Madison and
Boulder, and manufacturing centers like Pittsburgh and Detroit. The news
is that such sorting is becoming even more widespread and pronounced.
In the leading centers of this new class geography, the creative class
makes up more than 35 percent of the workforce. This is already the case
in the greater Washington, D.C. region, the Raleigh-Durham area, Boston,
and Austin---all areas undergoing tremendous economic growth. Despite
their considerable advantages, large regions have not cornered the market
as creative class locations. In fact, a number of smaller regions have
some of the highest creative-class concentrations in the nation---notably
college towns like East Lansing, Mich. and Madison, Wisc.
At the other end of the spectrum are regions that are being bypassed by
the creative class. Among large regions, Las Vegas, Grand Rapids and
Memphis harbor the smallest concentrations of the creative class. Members
of this class have nearly abandoned a wide range of smaller regions in the
outskirts of the South and Midwest. In small metropolitan areas like
Victoria, Texas and Jackson, Tenn., the creative class comprises less than
15 percent of the workforce. The leading centers for the working class
among large regions are Greensboro, N.C. and Memphis, Tenn., where the
working class makes up more than 30 percent of the workforce. Several
smaller regions in the South and Midwest are veritable working class
enclaves with 40 to 50 percent or more of their workforce in the
traditional industrial occupations.
These places have some of the most minuscule concentrations of the
creative class in the nation. They are symptomatic of a general lack of
overlap between the major creative-class centers and those of the working
class. Of the 26 large cities where the working class comprises more than
one-quarter of the population, only one, Houston, ranks among the top 10
destinations for the creative class.
Chicago, a bastion of working-class people that still ranks among the top
20 large creative centers, is interesting because it shows how the
creative class and the traditional working class can coexist. But Chicago
has an advantage in that it is a big city, with more than a million
members of the creative class. The University of Chicago sociologist Terry
Clark likes to say Chicago developed an innovative political and cultural
solution to this issue. Under the second Mayor Daley, the city integrated
the members of the creative class into the city's culture and politics by
treating them essentially as just another "ethnic group" that needed
sufficient space to express its identity.
Las Vegas has the highest concentration of the service class among large
cities, 58 percent, while West Palm Beach, Orlando, and Miami also have
around half. These regions rank near the bottom of the list for the
creative class. The service class makes up more than half the workforce in
nearly 50 small and medium-size regions across the country. Few of them
boast any significant concentrations of the creative class, save
vacationers, and offer little prospect for upward mobility. They include
resort towns like Honolulu and Cape Cod. But they also include places like
Shreveport, Lou. and Pittsfield, Mass. For these places that are not
tourist destinations, the economic and social future is troubling to
contemplate.
Plug-and-Play Communities
Why do some places become destinations for the creative while others
don't? Economists speak of the importance of industries having "low entry
barriers," so that new firms can easily enter and keep the industry vital.
Similarly, I think it's important for a place to have low entry barriers
for people---that is, to be a place where newcomers are accepted quickly
into all sorts of social and economic arrangements. All else being equal,
they are likely to attract greater numbers of talented and creative
people---the sort of people who power innovation and growth. Places that
thrive in today's world tend to be plug-and-play communities where anyone
can fit in quickly. These are places where people can find opportunity,
build support structures, be themselves, and not get stuck in any one
identity. The plug-and-play community is one that somebody can move into
and put together a life---or at least a facsimile of a life---in a week.
Creative centers also tend to be places with thick labor markets that can
fulfill the employment needs of members of the creative class, who, by and
large, are not looking just for "a job" but for places that offer many
employment opportunities.
Cities and regions that attract lots of creative talent are also those
with greater diversity and higher levels of quality of place. That's
because location choices of the creative class are based to a large degree
on their lifestyle interests, and these go well beyond the standard
"quality-of-life" amenities that most experts think are important.
For instance, in 1998, I met Gary Gates, then a doctoral student at
Carnegie Mellon. While I had been studying the location choices of
high-tech industries and talented people, Gates had been exploring the
location patterns of gay people. My list of the country's high-tech hot
spots looked an awful lot like his list of the places with highest
concentrations of gay people. When we compared these two lists with more
statistical rigor, his Gay Index turned out to correlate very strongly to
my own measures of high-tech growth. Other measures I came up with, like
the Bohemian Index---a measure of artists, writers, and
performers---produced similar results.
Talented people seek an environment open to differences. Many highly
creative people, regardless of ethnic background or sexual orientation,
grew up feeling like outsiders, different in some way from most of their
schoolmates. When they are sizing up a new company and community,
acceptance of diversity and of gays in particular is a sign that reads
"non-standard people welcome here."
The creative class people I study use the word "diversity" a lot, but not
to press any political hot buttons. Diversity is simply something they
value in all its manifestations. This is spoken of so often, and so
matter-of-factly, that I take it to be a fundamental marker of creative
class values. Creative-minded people enjoy a mix of influences. They want
to hear different kinds of music and try different kinds of food. They
want to meet and socialize with people unlike themselves, trade views and
spar over issues.
As with employers, visible diversity serves as a signal that a community
embraces the open meritocratic values of the creative age. The people I
talked to also desired nightlife with a wide mix of options. The most
highly valued options were experiential ones---interesting music venues,
neighborhood art galleries, performance spaces, and theaters. A vibrant,
varied nightlife was viewed by many as another signal that a city "gets
it," even by those who infrequently partake in nightlife. More than
anything, the creative class craves real experiences in the real world.
They favor active, participatory recreation over passive,
institutionalized forms. They prefer indigenous street-level culture---a
teeming blend of cafes, sidewalk musicians, and small galleries and
bistros, where it is hard to draw the line between performers and
spectators. They crave stimulation, not escape. They want to pack their
time full of dense, high-quality, multidimensional experiences. Seldom has
one of my subjects expressed a desire to get away from it all. They want
to get into it all, and do it with eyes wide open.
Creative class people value active outdoor recreation very highly. They
are drawn to places and communities where many outdoor activities are
prevalent---both because they enjoy these activities and because their
presence is seen as a signal that the place is amenable to the broader
creative lifestyle. The creative-class people in my studies are into a
variety of active sports, from traditional ones like bicycling, jogging,
and kayaking to newer, more extreme ones, like trail running and
snowboarding.

Small-Size Cities Creativity Rankings
Rankings of 63 metro areas reporting populations 250,000 to 500,000 in the
2000 Census
Top Ten Cities

City
Creativity
Index
%Creative
Workers
Creative
Rank
High-Tech
Rank
Innovation
Rank
Diversity
Rank
1. Madison, WI
925
32.8
6
16
4
9
2. Des Moines, IA
862
32.1
8
2
16
20
3. Santa Barbara, CA
856
28.3
19
8
8
7
4. Melbourne, FL
855
35.5
1
6
9
32
5. Boise City, ID
854
35.2
3
1
1
46
6. Huntsville, AL
799
35.3
2
5
18
40
7. Lansing, MI
739
34.3
4
27
29
18
8. Binghamton, NY
731
30.8
12
7
3
60
9. Lexington, KY
717
27.0
28
24
10
12
10. New London, CT
715
28.1
23
11
13
33

Bottom Ten Cities

City
Creativity
Index
%Creative
Workers
Creative
Rank
High-Tech
Rank
Innovation
Rank
Diversity
Rank
63. Shreveport, LA
233
22.1
55
32
59
57
62. Ocala, FL
263
16.4
63
61
52
24
61. Visalia, CA
289
22.9
52
63
60
11
60. Killeen, TX
302
24.6
47
47
51
53
59. Fayetteville, NC
309
29.0
16
62
62
49
58. York, PA
360
22.3
54
54
26
52
57. Fayetteville, AR
366
21.1
57
57
42
17
56. Beaumont, TX
372
27.8
25
37
56
55
55. Lakeland, FL
385
20.9
59
56
53
5
54. Hickory, NC
393
19.4
61
48
32
30

Places are also valued for authenticity and uniqueness. Authenticity comes
from several aspects of a community---historic buildings, established
neighborhoods, a unique music scene, or specific cultural attributes. It
comes from the mix---from urban grit alongside renovated buildings, from
the commingling of young and old, long-time neighborhood characters and
yuppies, fashion models and "bag ladies." An authentic place also offers
unique and original experiences. Thus a place full of chain stores, chain
restaurants, and nightclubs is not authentic. You could have the same
experience anywhere.
Today, it seems, leading creative centers provide a solid mix of high-tech
industry, plentiful outdoor amenities, and an older urban center whose
rebirth has been fueled in part by a combination of creativity and
innovative technology, as well as lifestyle amenities. These include
places like the greater Boston area, which has the Route 128 suburban
complex, Harvard and MIT, and several charming inner-city Boston
neighborhoods. Seattle has suburban Bellevue and Redmond (where Microsoft
is located), beautiful mountains and country, and a series of revitalized
urban neighborhoods. The San Francisco Bay area has everything from posh
inner-city neighborhoods to ultra-hip districts like SoMa (South of
Market) and lifestyle enclaves like Marin County as well as the Silicon
Valley. Even Austin includes traditional high-tech developments to the
north, lifestyle centers for cycling and outdoor activities, and a
revitalizing university/ downtown community centered on vibrant Sixth
Street, the warehouse district and the music scene---a critical element of
a thriving creative center.
Institutional Sclerosis
Even as places like Austin and Seattle are thriving, much of the country
is failing to adapt to the demands of the creative age. It is not that
struggling cities like Pittsburgh do not want to grow or encourage
high-tech industries. In most cases, their leaders are doing everything
they think they can to spur innovation and high-tech growth. But most of
the time, they are either unwilling or unable to do the things required to
create an environment or habitat attractive to the creative class. They
pay lip service to the need to "attract talent," but continue to pour
resources into recruiting call centers, underwriting big-box retailers,
subsidizing downtown malls, and squandering precious taxpayer dollars on
extravagant stadium complexes. Or they try to create facsimiles of
neighborhoods or retail districts, replacing the old and authentic with
the new and generic---and in doing so drive the creative class away.
It is a telling commentary on our age that at a time when political will
seems difficult to muster for virtually anything, city after city can
generate the political capital to underwrite hundreds of millions of
dollars of investments in professional sports stadiums. And you know what?
They don't matter to the creative class. Not once during any of my focus
groups and interviews did the members of the creative class mention
professional sports as playing a role of any sort in their choice of where
to live and work. What makes most cities unable to even imagine devoting
those kinds of resources or political will to do the things that people
say really matter to them?
The answer is simple. These cities are trapped by their past. Despite the
lip service they might pay, they are unwilling or unable to do what it
takes to attract the creative class. The late economist Mancur Olson long
ago noted that the decline of nations and regions is a product of an
organizational and cultural hardening of the arteries he called
"institutional sclerosis." Places that grow up and prosper in one era,
Olson argued, find it difficult and often times impossible to adopt new
organizational and cultural patterns, regardless of how beneficial they
might be. Consequently, innovation and growth shift to new places, which
can adapt to and harness these shifts for their benefit. This phenomenon,
he contends, is how England got trapped and how the U.S. became the
world's great economic power. It also accounts for the shift in economic
activity from the old industrial cities to newer cities in the South and
West, according to Olson.
Olson's analysis presciently identifies why so many cities across the
nation remain trapped in the culture and attitudes of the bygone
organizational age, unable or unwilling to adapt to current trends. Cities
like Detroit, Cleveland, and my current hometown of Pittsburgh were at the
forefront of the organizational age. The cultural and attitudinal norms of
that age became so powerfully ingrained in these places that they did not
allow the new norms and attitudes associated with the creative age to grow
up, diffuse and become generally accepted. This process, in turn, stamped
out much of the creative impulse, causing talented and creative people to
seek out new places where they could more readily plug in and make a go of
it.
Most experts and scholars have not even begun to think in terms of a
creative community. Instead, they tend to try to emulate the Silicon
Valley model which author Joel Kotkin has dubbed the "nerdistan." But the
nerdistan is a limited economic development model, which misunderstands
the role played by creativity in generating innovation and economic
growth. Nerdistans are bland, uninteresting places with acre upon acre of
identical office complexes, row after row of asphalt parking lots,
freeways clogged with cars, cookie-cutter housing developments, and
strip-malls sprawling in every direction. Many of these places have fallen
victim to the very kinds of problems they were supposed to avoid. The
comfort and security of places like Silicon Valley have gradually given
way to sprawl, pollution, and paralyzing traffic jams. As one technology
executive told The Wall Street Journal, "I really didn't want to live in
San Jose. Every time I went up there, the concrete jungle got me down."
His company eventually settled on a more urban Southern California
location in downtown Pasadena close to the CalTech campus.
Kotkin finds that the lack of lifestyle amenities is causing significant
problems in attracting top creative people to places like the North
Carolina Research Triangle. He quotes a major real estate developer as
saying, "Ask anyone where downtown is and nobody can tell you. There's not
much of a sense of place here. . . .The people I am selling space to are
screaming about cultural issues." The Research Triangle lacks the hip
urban lifestyle found in places like San Francisco, Seattle, New York, and
Chicago, laments a University of North Carolina researcher: "In
Raleigh-Durham, we can always visit the hog farms."
The Kids Are All Right
How do you build a truly creative community---one that can survive and
prosper in this emerging age? The key can no longer be found in the usual
strategies. Recruiting more companies won't do it; neither will trying to
become the next Silicon Valley. While it certainly remains important to
have a solid business climate, having an effective people climate is even
more essential. By this I mean a general strategy aimed at attracting and
retaining people---especially, but not limited to, creative people. This
entails remaining open to diversity and actively working to cultivate it,
and investing in the lifestyle amenities that people really want and use
often, as opposed to using financial incentives to attract companies,
build professional sports stadiums, or develop retail complexes.
The benefits of this kind of strategy are obvious. Whereas companies---or
sports teams, for that matter---that get financial incentives can pull up
and leave at virtually a moment's notice, investments in amenities like
urban parks, for example, last for generations. Other amenities---like
bike lanes or off-road trails for running, cycling, rollerblading, or just
walking your dog---benefit a wide swath of the population.
There is no one-size-fits-all model for a successful people climate. The
members of the creative class are diverse across the dimensions of age,
ethnicity and race, marital status, and sexual preference. An effective
people climate needs to emphasize openness and diversity, and to help
reinforce low barriers to entry. Thus, it cannot be restrictive or
monolithic.
Openness to immigration is particularly important for smaller cities and
regions, while the ability to attract so-called bohemians is key for
larger cities and regions. For cities and regions to attract these groups,
they need to develop the kinds of people climates that appeal to them and
meet their needs.
Yet if you ask most community leaders what kinds of people they'd most
want to attract, they'd likely say successful married couples in their 30s
and 40s---people with good middle-to-upper-income jobs and stable family
lives. I certainly think it is important for cities and communities to be
good for children and families. But less than a quarter of all American
households consist of traditional nuclear families, and focusing solely on
their needs has been a losing strategy, one that neglects a critical
engine of economic growth: young people.
Young workers have typically been thought of as transients who contribute
little to a city's bottom line. But in the creative age, they matter for
two reasons. First, they are workhorses. They are able to work longer and
harder, and are more prone to take risks, precisely because they are young
and childless. In rapidly changing industries, it's often the most recent
graduates who have the most up-to-date skills. Second, people are staying
single longer. The average age of marriage for both men and women has
risen some five years over the past generation. College-educated people
postpone marriage longer than the national averages. Among this group, one
of the fastest growing categories is the never-been-married. To prosper in
the creative age, regions have to offer a people climate that satisfies
this group's social interests and lifestyle needs, as well as address
those of other groups.
Furthermore, a climate oriented to young people is also attractive to the
creative class more broadly. Creative-class people do not lose their
lifestyle preferences as they age. They don't stop bicycling or running,
for instance, just because they have children. When they put their
children in child seats or jogging strollers, amenities like traffic-free
bike paths become more important than ever. They also continue to value
diversity and tolerance. The middle-aged and older people I speak with may
no longer hang around in nightspots until 4 a.m., but they enjoy
stimulating, dynamic places with high levels of cultural interplay. And if
they have children, that's the kind of environment in which they want them
to grow up.
My adopted hometown of Pittsburgh has been slow to realize this. City
leaders continue to promote Pittsburgh as a place that is good for
families, seemingly unaware of the demographic changes that have made
young people, singles, new immigrants, and gays critical to the emerging
social fabric. People in focus groups I have conducted feel that
Pittsburgh is not open to minority groups, new immigrants, or gays. Young
women feel there are substantial barriers to their advancement. Talented
members of racial and ethnic minorities, as well as professional women,
express their desire to leave the city at a rate far greater than their
white male counterparts. So do creative people from all walks of life.
Is there hope for Pittsburgh? Of course there is. First, although the
region's economy is not dynamic, neither is it the basket case it could
easily have become. Twenty years ago there were no significant venture
capital firms in the area; now there are many, and thriving high-tech
firms continue to form and make their mark. There are signs of life in the
social and cultural milieu as well. The region's immigrant population has
begun to tick upward, fed by students and professors at the universities
and employees in the medical and technology sectors. Major suburbs to the
east of the city now have Hindu temples and a growing Indian-American
population. The area's gay community, while not large, has become more
active and visible. Pittsburgh's increasing status in the gay world is
reflected in the fact that it is the "location" for Showtime's "Queer as
Folk" series.
Many of Pittsburgh's creative class have proven to be relentless cultural
builders. The Andy Warhol Museum and the Mattress Factory, a
museum/workspace devoted to large-scale installation art, have achieved
worldwide recognition. Street-level culture has a growing foothold in
Pittsburgh, too, as main street corridors in several older working-class
districts have been transformed. Political leaders are in some cases open
to new models of development. Pittsburgh mayor Tom Murphy has been an
ardent promoter of biking and foot trails, among other things. The city's
absolutely first-rate architecture and urban design community has become
much more vocal about the need to preserve historic buildings, invest in
neighborhoods, and institute tough design standards. It would be very hard
today (dare I say nearly impossible) to knock down historic buildings and
dismember vibrant urban neighborhoods as was done in the past. As these
new groups and efforts reach critical mass, the norms and attitudes that
have long prevailed in the city are being challenged.
For what it's worth, I'll put my money---and a lot of my effort---into
Pittsburgh's making it. If Pittsburgh, with all of its assets and its
emerging human creativity, somehow can't make it in the creative age, I
fear the future does not bode well for other older industrial communities
and established cities, and the lamentable new class segregation among
cities will continue to worsen.
For further information and rankings of creative cities, go to
www.creativeclass.org.

Successful "green" investing isn't easy

Successful "green" investing isn't easy
The Seattle Times, 24 April 2005 - If you are an environmental investor,
does it make sense to preach to the converted or try to reform the
sinners? There are two schools of thought.
One is to pick only stocks and mutual funds whose practices are more
environmentally sound than the average company or fund. The other is to
wage campaigns to get the less-than-green companies to change their
environmental policies.
Neither way is very effective in promoting large-scale environmental
progress. Individual investors would have better results adopting a
broad-based strategy and taking personal action for environmental change.
"I'm not a fan of green investing," says Louis Kokernak, a certified
financial planner with Haven Financial Advisors in Austin, Texas. "There
is no way that ExxonMobil can be as environmentally friendly as a Whole
Foods grocery store."
Can environmentally sensitive mutual funds make a dent in the quest to
address global warming, resource conservation and pollution reduction?
"Green," or socially responsible funds, are such a small part of the more
than $2 trillion in assets managed for social responsibility, it's
unlikely that their exclusion of "brown" companies and focusing on the
green corporations will have as much clout as the actions of the large
institutional managers.
By my tally, there is only about $50 billion invested in the 76 socially
responsible mutual funds listed on socialfunds.com, a social-investing Web
site, as of March 31. In comparison, the Vanguard 500 Index Fund alone had
$103 billion in assets, according to Bloomberg data.
The most well-known, broad-based proxy for green stocks is the $1.3
billion Domini Social Equity Fund, based on the Domini 400 Social Index of
socially and environmentally responsible companies. While you could own a
portfolio of the greenest stocks on the planet, it wouldn't be the best
investment to hold.
The Domini fund lagged the S&P 500 index by 9.5 percent from March 31,
2000, through March 31 of this year. If that wasn't enough to discourage
you, consider that even with its green screening, the fund is almost a
perfect statistical match with the risk or volatility of the S&P 500, with
a beta of 1.01 (1.00 being an exact fit with the index).
Moreover, 96 percent of its peers did better than the Domini fund during
the last five years. The fund is also expensive for an index fund, with
0.94 percent in annual expenses and a 12b-1 fee (used to pay for
advertising and promoting the fund) of 0.25 percent.
Why not construct a diversified portfolio and reduce your investment risk?
With a stock index fund that replicates the Wilshire 5000 Index of nearly
every listed U.S. stock, you mix the saints with sinners yet avoid the
risk of concentrating on a handful of companies.
Consider the Vanguard Total Stock Market VIPER, an exchange-traded fund
that replicates the Wilshire 5000 Index of more than 6,000 U.S.-listed
stocks. Not only would you have a greater chance of investing in a host of
environmentally friendly companies your overall risk and expenses would be
lower.
Charging 0.13 in annual expenses (plus a brokerage commission), the
Vanguard fund had a standard deviation of 14.82, a common measure of risk,
according to Morningstar.com, the investment-research Web site. In
contrast, the Domini fund had a standard deviation of 15.22.
As large stockholders, social funds voted against management 90 percent to
100 percent of the time when corporations wanted to block
shareholder-proxy resolutions on climate change (global warming) or
reporting on long-term environmental progress policies, according to a
recent study by the Social Investment Forum, an industry-trade group.
Of the largest fund complexes surveyed by the forum, conventional fund
groups only voted against management on climate-change issues 6.8 percent
of the time.
The Schwab fund group had the best "green" voting record of the mainstream
funds, opposing management 37.5 percent of the time.
If you want to make a more direct contribution to environmental change
while bolstering your finances, examine your personal consumption
patterns. You could drive less and use more energy-stingy products in your
home and office.
Say you were to buy a hybrid electric-gas vehicle that averages 20 to 40
percent better fuel economy than a conventional vehicle. Assuming the
useful life of such a car is 150,000 miles and you drove it for 10 years,
you would save $5,863 on gasoline, Kokernak estimates.
Once you include a $2,000 U.S. tax deduction for the hybrid ? good only
through the end of 2004 ? you would reap a 20 percent return on
investment.
Feel up to some personal political lobbying as well? Industrialized
countries need an "Apollo"-like program to build energy independence, not
more slickly marketed environmental mutual funds. That means more power
from renewable sources, energy ? efficient buildings and appliances, and
national standards for 50 mpg vehicles ? or better.
Kokernak projects that if everyone in the United States drove a hybrid
vehicle or total vehicle fuel efficiency improved by 30 percent (possible
with meaningful federal laws), then U.S. oil imports for gasoline alone
could decline to 9.3 million barrels per day from about 12 million.
The net environmental gain would also reduce the threat of global warming,
reduce pollution and improve national security.
You can do the right environmental thing and still build your financial
security. Just don't confuse "green" with prudent investing and your power
to make a difference in the health of the planet.