As a nation, we’re addicted to “best cities” lists – at least, I’m addicted to such lists.  But, like most addictions, the list offers a short-term buzz without real sustenance.  Recently, Chris Gibbons initiated a conversation on his organization’s listserv regarding the Milken Institute’s annual list of “Best Performing Cities.”  The Milken Institute list suffers from the limitations of the form, but it’s better than most.

Outcomes-Based

The Milken Institute list recognizes that the cost of doing business is only half of the economic equation.  “A better measurement of the ‘real’ cost of doing business should include not only the conventional cost of doing business (wages, tax rates, real estate costs and others), but the benefit of situating in expensive locations.”  Consequently, the Milken Institute ranks cities based upon outcomes.  For purposes of its list, the Milken Institute equates “best” with job and wage growth.

This outcomes-based approach yields some interesting results.  Populating the top 20 cities are familiar communities such as Las Vegas, San Diego, and Raleigh-Durham-Chapel Hill.  But, there are some surprises, such as Anchorage and Chico, California.  Included among the best small cities are Billings, Montana and Iowa City.  Clearly, job and wage growth isn’t limited to the major metropolitan areas of the left and right coasts.

But, there are some oddities.  By the metrics of this report, Utica-Rome, New York was a higher-performing metro than Santa Cruz, Boston, Portland, San Jose, and San Francisco.  But, does that make Utica-Rome a good model for our respective communities?

Keys to Becoming a “Best” City

According to the Milken Institute, there are five key factors that drive job and wage growth:

Ecosystem Diversity – “A metro must be able to innovate, start and grow new firms continually…because many large firms will likely stagnate or even disappear…cities with strength in entrepreneurship will be among our Best Performing Cities.”

Capital Access – “Metros that develop deep private capital markets are poised for expansion.”

Creative Capital – “The knowledge, skills, experience and innovation potential of talented individuals have greater value than capital equipment…geography matters more than ever to businesses because skilled technical and creative people determine firm and metropolitan success.”

Innovation Capacity – “Research capacity is a necessary, but insufficient factor in determining regional success.  It’s not just about the research, but what you do with it that counts.”

Global Connectedness – “In a globalized world, success turns in part on a firm’s ability to meet global quality standards and tap into a global distribution network.”

A few years ago, the Milken Institute was part of a relatively small group touting the importance of such factors.  The view, however, has become increasingly mainstream, which is promising.

Missing Connections

The Milken Institute’s version of the best cities list is notable for its focus on measurable outcomes, its insights into enabling networks and conditions, and its willingness to contradict more conventional notions of which cities are “best.”  On the other hand, it plays into at least two of our weaknesses when it comes to the complex topic of economic and community development.

First off, we are responsible for determining what is best for our own communities.  As Dietrich Dörner wrote, “If we want to deal rationally with a complex problem, the first thing we do (tentatively, at least) is define our goals clearly.”  The Milken Institute’s list reflects one plausible set of goals – they may or may not be ours.

Second, while it's vitally important to identify the stocks of truly important capabilities in our communities; it’s not sufficient.  We also need a deeper understanding of relationships, inflows, and outflows over time.  Intuitively, we know that rapid wage and job growth in a community can both enhance and diminish the attractiveness of a place as a home for talented individuals.  What might we expect the net effect to be over time in the context of our community?  How will changes in the creation and application of technology influence the geography of equity capital?  We’re sensing a new mutation in the private equity markets that combines the business building approach of (necessarily) parochial venture capital with the geographic reach of late-stage investors.  What implication does that have for local capital-building efforts?

System Dynamics and Your Best City

Better answers come from better questions.  The Milken Institute and others are raising the bar by helping us ask better questions about the complex, dynamic, adaptive systems that are our communities and economies.  The methodologies and tools of system dynamics, I believe, are likely to help us progress in our understanding, policies, and actions.  I’m fortunate to have the opportunity to collaborate with Laura Black and Don Greer of Greer Black Company, experts in system dynamics and computer simulation as applied to business.  With some work, we may be able to develop ways to determine better ways for communities to develop a list of one: their best city.