Local is the New Global

Jonathan Ogden, former left tackle for the Baltimore Ravens, is a pro football Hall of Famer and a sports icon in Baltimore. We gave my son Will an Ogden football jersey as a birthday present and wanted to frame it for him. One store offered to do it for $900, and after shopping around we discovered that $600 was about as low as it would get. This was about five times what we paid for the jersey. Why is this so expensive, I wondered? Is it because Mr. Ogden is gigantic (6 feet 9 inches and 345 pounds), or is there something else going on here? Is this too specialized a service that the framer’s job can’t be automated and that technology and e-commerce can’t lower the price?

While technology through “creative destruction” has created more jobs than it has destroyed since the beginning of time, there is a growing number of people who believe we have now passed the tipping point. If true, this will have cataclysmic implications not only for jobs but for our politics.

Encroachment of technology and automation isn’t the only thing working against the jobs market. Daniel Alpert’s terrific book “The Age of Oversupply” sums it up like this: There is a battle of ideas between the “cyclists” who believe that after a major economic downturn we slowly return to the norm, and the “secularists” who believe that due to permanent shifts in the global economy we will never return to the old normal. Mr. Alpert’s central point is that we are in an age where positive job creation through technology may not return, and that we may have even bigger job creation headwinds due to an oversupply of money and cheap global labor.

In short, we need to find new ways to work that are better shielded from the forces of too much global money, cheap labor and even cheaper automation. Better education is the  long-term answer, but it will not help in the short term. Protected local industries (industries with goods or services that cannot be done remotely or performed fully by automation) may be the answer we need today. What are some of these areas?

Health Care: With the number of Americans over the age of 65 expected to double in the next 40 years to over 90 million, and because more than two-thirds of the average American’s lifetime health care spending occurs after they turn 65, the health-care industry will see explosive growth. I expect health care will exceed technology as the No. 1 user of office space in the U.S. soon.

Cool Local Stuff: I was recently in Portland, Oregon, which may be the craft beer capital of the universe. The competition between local brewers is intense; some even age their product in old whiskey barrels that gives it a degree of complexity that I have never experienced before in a beer or wine (take that oenophiles!) Why are people drinking local craft beers rather than one of the big national brands they grew up with? Many think craft beers taste better (you could age fire ants in an old whiskey barrel and I am sure they’d taste great too). There also is the perception that drinking craft beer is cooler than the big brand names. “Local is cool” is the trend in most American cities. CBRE Research recently published an insightful report on The Craft Beer Revolution in Texas and its impact on the local commercial real estate industry.

Perishable Goods: Despite the well-known recent troubles in segments of the retail industry, food-service and related jobs have been increasing, and the tenant mix of many retail properties has been adjusted to include more of these types of uses.

Skilled Jobs in Automated Manufacturing: Globalization isn’t a one-trick pony. It affects capital availability, information, goods and many other things that generally have worked together but are now deviating. I expect capital flows will increase, though not in all forms of currency (see China and Bitcoin). I expect information flows will increase, though there will be more push-back on this due to privacy and local government concerns. I expect that globalization in the trade of goods, which has already slowed, will go negative due to the same factors that eliminated some jobs: cheaper automation that leads to significant reshoring of manufacturing. People must learn how to work side by side with robots. The areas of real estate that will be most protected from this trade are those that cater to the highest value-add goods, such as airport industrial. Air freight today represents only 1% of global trade but 35% of the total value. Expect this to increase, along with the industrial real estate that supports it.

So I am framing my kid’s Jonathan Ogden Jersey and I’m doing it locally. I suppose I could send my irreplaceable, unique, valuable stuff to “we’ll do it cheaper and promise not to break or lose your stuff.com,” but given my experience of having furniture, pictures and other goods shipped to my home (25% or more come broken, particularly from small boutique vendors), it’s not going to happen. Internet retail solved a lot of problems, but it still hasn’t overcome the physics of shipping large and fragile unique goods. When a local market is protected, it creates pricing power and my “paying up” means paying the fair market price.

What is the solution to the forces of globalization and automation? It simply may be “going local”. And beer is the new wine (strike two, oenophiles!)

By Spencer Levy, Americas Head of @CBREResearch | Senior Economic Advisor.