Editor’s note: This post was republished with permission from the Ewing Marion Kauffman Foundation’s Growthology blog.
Earlier this year, my hometown, St. Louis, was crushed when the owner of the St. Louis Rams decided to move the team back to its original hometown of Los Angeles. While much writing has been done about whether greed motivated the team’s move and who ended up as winners and losers of the decision, I want focus this post on the city. St. Louis is not the only city that has found it harder and harder to keep up with its past accomplishments. There is now a feeling of abandonment and longing for a more glorious past in St. Louis. And now it finds itself without a professional football team, asking if it is destined to be a shrinking, “minor-league” city.
St. Louis is not alone in that feeling. Cities throughout the Midwest, including Cleveland, Detroit and Pittsburgh, were all, at one time or another, powerhouse cities that rivaled the coastal giants. In 1920, all four of those cities were in the top 10 in the United States in population, with Cleveland, St. Louis and Detroit in the top six. Through the 1950s, those three cities remained in the top 10.
Industries such as steel, automobiles, manufacturing, shipping, aerospace and beer were mainstays in these cities. From the firms that ruled these industries arose the development of what it is called today in the entrepreneurial community as “clusters.” Yet none of these clusters were able to fend off the competing forces that emerged and altered these cities.
Yet, as the 21st century began, St. Louis and other “rust-belt” cities have struggled to find their footing. The industries that stood as heavyweights and attracted attention and migration from across the country saw decline. In 1980, St. Louis was home to 23 Fortune 500 companies; by 2015 that number had fallen to nine. The economic clusters developed by industry heavyweights that brought vibrancy and dynamism to these cities and produced the next generation of entrepreneurs and business leaders in previous generations were decimated.
What factors explain how cities like St. Louis have fallen as business giants, while other cities have emerged as new leaders? While there are undoubtedly pieces to this puzzle that are idiosyncratic to each city, there are three economy-wide effects that have presented difficult-to-scale hurdles for a city trying to reclaim its past glory.
First and most broadly, the increasingly global and connected economy has shifted in ways that reward nimbleness and specialization. The transition from an economy dominated by goods and their production to an economy that runs on ideas and knowledge has advantaged some areas while others have struggled to adjust. St. Louis, as a transportation hub and traditional manufacturing and agricultural destination, had a significant portion of the industrial makeup tied into the kinds of industries that have been more strongly affected by automation. The decline in employment in these industries is not just due to the overall industry decline but also the shifting skills needed to remain competitive. The talent native to St. Louis firms, which had networks and assets connected to these industries, were devalued due to the changing nature of the economy.
As a number of small but significant laws and restrictions on merger and acquisition policy were chipped away, many of the leading lights of St. Louis business encountered new competitive pressures. Importantly for regional strength, the regulations were written so that “new guidelines rejected regional equity or local control as considerations in deciding whether to block mergers or prosecute monopolies.”
Slowly, companies that had stood as institutions in St. Louis became part of companies that had leadership headquartered elsewhere. The heaviest blow, at least to civic pride, was the sale of Anheuser Busch, a stalwart of business and culture in the city, to the Belgian conglomerate Inbev. St. Louis’s local business ecosystem (both the large, established firms that put the city on the map and the new companies that sprouted from and spun out of those firms), eventually felt the consequences of the exodus. The hemorrhaging of these large firms from the city was more than just an impediment for those who in the past would find jobs with these firms.
The firms that remained in St. Louis now had a smaller market to in which to sell their goods and services, as the firms that left and became part of larger firms tended to already have relationships with other firms in the new city. Those that remained lost some of the connectivity that energizes an ecosystem, especially for entrepreneurship. As more and more firms were acquired or underwent mergers, the relationships that St. Louis business leaders and up-and-comers had cultivated became less valuable as more and more decisions were made not by local business leaders but by executives across the globe.
St. Louis is a city founded within miles of the confluence of the Missouri and Mississippi Rivers, the two largest in North America. The geographic advantage of being on those avenues of commerce has decreased in importance as more shipping is done by air and across oceans. In addition to the weakening geographic importance of the city, technology has also altered the decision calculus for determining where to work and live. Individuals, regardless of proximity, can collaborate globally, especially in information and technology dominated fields.
This kind of interaction lessens the chances of informal, so-called, collision opportunities. Here, individuals with different backgrounds and ideas meet and their combined expertise leads to innovation and dynamism. Enrico Moretti, a University of California economist, calls these sort of opportunities agglomeration spillovers, and suggests they are vital to a city’s growth. As work opportunities nationally became more location-agnostic and as the raw number of people able to participate in these collisions decreased, St. Louis struggled to keep up with cities that weren’t losing some of their most connected talent.
The city and traditional St. Louis businesses were hardly immune to these three structural forces, but there may still be hope for my hometown. Next time, I’ll examine how St. Louis and similar cities can rebound to thrive, taking advantage of current economic conditions, and policy options.
Chris Jackson is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, assisting in the understanding of what policies and environments best promote entrepreneurship and education in the pursuit of economic growth.
Find Jackson on Twitter: @chrisjack_son.