Twin Cities hold steady amid nation's largest cities

Global consultant McKinsey & Co. recently released a firmwide study that looks at cities as economic engines. In the United States, the Minneapolis-St. Paul area hung onto its rank of No. 14 among the 30 largest cities between 1978 and 2010.

Consider that a victory. With the exception of the Twin Cities and Chicago, most other mid-continent U.S. cities dropped in economic output, due largely to declines in population and manufacturing. Those cities include Detroit, Pittsburgh, St. Louis, Kansas City, Cincinnati, Cleveland, Milwaukee, New Orleans and Indianapolis.

Seems that being home to a National Football League team doesn't necessarily assure success.

Tim Welsh, director of McKinsey's Minneapolis office, talked about the April report, entitled "Urban America: U.S. Cities in the Global Economy." The study can be found at www.mckinsey.com/Insights/MGI/Research/Urbanization.

QWhat does this study show?

AMcKinsey has been studying for years what drives global economic development. What we've discovered is that economic development is disproportionately occurring around the world in cities, particularly in mid-sized cities, just like the Minneapolis-St. Paul area. These are the engines of growth. We're all captivated by the New Yorks and Londons, which are extremely important. But the economic development is occurring in middle-sized cities.

Cities experience economic growth because they see population increases. Minneapolis has benefited a little more than average. Secondly, when you look at the measure of gross domestic product per capita in cities, how productive people are in those cities, economic growth in a city is nothing more than the number of people times productive growth generated by those people. Cities are benefiting from migration and productivity increases and we have benefited a little more than average. It's allowed us to be a little more prosperous. Other cities have fallen off.

AOur research suggested it's not luck. A couple of factors have helped us. The first is a long-term strength of this region around human capital, and some of the highest levels of education of anywhere in the country as measured by people with bachelor's degrees. And we have a long history of business and government leaders collaborating to make sure we have a vibrant community. MSP has succeeded because it was intentional about a few things. One of the things we've seen in the research is that we are competing globally.

QHow do we continue to grow?

ASuccessful cities benchmark themselves against the global competition. Toronto regularly benchmarks against a series of metrics, such as education, public infrastructure, level of innovation and entrepreneurship . . . the underpinnings of economic vibrancy, new companies, a human capital pipeline, the infrastructure to support growth. It's not easy to collect this information, but it's our view that it's critical, just as companies want to know how they are doing against competitors. We should be tracking how we're doing against the world's highest-performing cities. We would want to consider places like London and Paris and places in this country such as a Dallas and Atlanta, which are connecting to global markets, and cities in emerging economies such as Sao Paulo, Brazil, or the major Chinese cities.

QAre we doing that?

APeople are talking about the importance of gathering this kind of data. There's an opportunity to pull this together with a set of benchmarks and also collect data on the cities to which we're comparing ourselves. I'm not aware that's going on in a concerted way. It's occurring in pieces.

AMinneapolis-St. Paul was one of the few [urban areas] in the Midwest that has thrived. We talked about human capital. The other piece is connections to global markets. We believe cities must be connected in infrastructure and trade flows to other parts of the world. Simple things such as [airline] flights. And whether businesses in this market are taking advantage of emerging markets.

QWhat do we need to focus on now?

AEconomic clusters. What industries you have and want going forward. The second is continued investment in human capital, starting with preschool education, K-12 and all forms of higher education, including job-training and retraining. We've been great at this historically. The third area is innovation and entrepreneurship. Much of city growth comes from new ideas and companies. ... You have to have a pipeline for that.

Big companies can be very helpful in spawning small companies. They help create the sources of ideas [and entrepreneurs] that may get spun off. But they are not sufficient. You also need to have a flow of angel and venture capital funds, an environment where it's relatively easy to start businesses ... and a vibrant community of entrepreneurs. The fourth is good infrastructure of roads and airports, etc. The fifth is public and private collaboration.

We've done quite well. Going forward are we making enough progress to keep ourselves above the bar? That's the question.

AWe did not specifically look at that factor. We can say that the ability to attract high-talent, energetic people is important for economic development. We know that what matters in attracting them are high-quality schools, good transportation, good housing and entertainment. The NFL is part of the entertainment mix.