Tuesday, December 11, 2012

Whither Diversification?

Photo by Lasvegaslover, found at Wikipedia
Another meeting of economists and business people in Las Vegas, and another mention of economic diversification, the mirage of our desert home that always seems a bit out of reach. We rely too much on hospitality and tourism, it is said, and if our economy does not diversify, we’ll continue to suffer disproportionately from recessions as we have for the last 5 years. We must diversify.

Of course, this raises a few points.

First and foremost, we’re suffering more than others in this current Great Recession because of our (formerly) huge construction sector. Perhaps too much of our local economy was invested in construction and mortgage financing (though wouldn't that count as diversification? and didn't it exist because there was a demonstrable need for it to exist?), and the loss of 80,000 construction jobs has no doubt put a bit of a hitch in our giddyap. But through most of the city’s history, we’ve entered national recessions late, left them early, and suffered far less than other communities while the recessions lasted. This latest recession simply hit us where we lived.

Second – Diversification is, to some extent, a wild thing not easily raised in captivity. If we haven’t diversified yet, it might be because other than a permissive attitude to booze, gambling and questionable taste in the name of a good time, Southern Nevada has very few natural resources. We have a river close by, but that’s already been dammed. We had wide open spaces up north, but those are already filled with atomic bomb craters and UFO research facilities. What, precisely, does Las Vegas offer to the world that the world is not already aware of? If somebody can find the cure for cancer in caliche or find a way to squeeze power out of the sun without the need for massive government subsidies (sorry kids, it's a profit and loss system and that isn't going to change any time soon) we’re all set, but otherwise we don’t have much to work with.

Third – I know, in the age of the internet, many businesses can operate anywhere, so why not operate in Fabulous Las Vegas? Well, Las Vegas does have a few things to offer the modern web-savvy business – the greatest internet connectivity in the world, a tax structure that favors start-ups and gazelles and the presence of Tony Hsieh come immediately to mind. On the other hand, the density of people living on the coasts suggest that, if a person can live and work absolutely anywhere, they will probably choose San Francisco, Los Angeles or Seattle before they will set up shop in Las Vegas.

Some folks will point out that the reason we don’t get our fair share (there is no such thing, by the way) of tech companies is that we don’t have the greatest education system in the world. Of course, Steve Jobs and Bill Gates didn’t have the most stellar careers in higher education in the world and managed to do pretty well for themselves in the world of tech, but I concede the point. We could invest in churning out highly educated people, of course, but ask Iowa how well that’s worked out for them – wonderful higher education system, and tons of educated Iowans now living and working outside of Iowa. The problem for Las Vegas is that, like agricultural Iowa, it has no need for a highly educated work force right now. We would be faced with the problem of producing the supply to attract the demand, and the supply (educated human beings) couldn’t very well wait around for the demand to show up – once they’re out of school, they need a job, and I fear they would find that job elsewhere.

At the heart of the problem, I think, is that Las Vegas, as it exists today, should probably not exist as it does today. Given the resources of the area, Las Vegas should probably be about the size of Bakersfield or Barstow, California – a stop on the road for people heading out to the beach. A weird series of circumstances, including legalized gambling and a number of government construction projects (Hoover Dam, Nellis AFB, the magnesium plants in Henderson during the Second World War, etc.) have conspired to place a remarkable number of people in the middle of the Mojave desert, and this has created the illusion that this city of 2 million people is just another large American city. Of course, this is not the case – we’re a rather strange, large American city, and the economic diversification one finds elsewhere may be tricky to achieve in Las Vegas, at least in the way some folks want to achieve it.

Perhaps the greatest resource of Las Vegas is its laissez-faire attitude. New rules in California governing the adult film industry could send more film makers to Las Vegas. "Great," folks might say, "let's add porn to our resume of sin." But the adult film industry is an industry, and it might have a compelling reason to relocate some production to Las Vegas. Jobs are jobs, right?

Likewise, we’re seeing more and more holding companies springing up in Las Vegas, since people want to own California businesses, but they don’t want to own California businesses in California because of the heavy tax burden in that state.

Medical tourism seems to be a possibility, since it allows us to play off our strength – serving tourists – and perhaps there are other ways to spin our expertise in hospitality into other industries.

That being said, none of the above are likely to ever rival leisure and hospitality in terms of employment in the Valley, and maybe that’s okay. For all its diversification, Houston is still dominated by the energy industry. Maybe the best plan for Las Vegans is to relax and let nature take its course. Given the resources at our disposal, Las Vegas has beaten all the odds to become the city it is today, and the same human genius (i.e. greed and ambition) that inspired Bugsy Siegel to build a resort in the desert south of Las Vegas may well find a way to diversify its economy in the future without having to resort to the horrors of convening a committee of experts.
Related Posts Plugin for WordPress, Blogger...