A Brief History of the Kansas City Area's
Economic Competitiveness

What are the three things most important to business success? According to the old adage, the answer is simple — “Location, location, and location.”

Centrality

Main Street, Kansas CityThis adage served the Kansas City area well through the mid-20th century. From the beginning, the region banked on its centrality, with the trading posts that marked the jumping-off point for the three main trails heading west in the early to mid-1800s — the Santa Fe Trail, the California Trail and the Oregon Trail.

When rail came, Kansas City was the place where the intercontinental rail lines first spanned the Missouri River. Rail spawned warehouses and factories on the south side of the river, and a city was born.

With the industrial revolution, the region became a national center for food processing. Situated in the middle of the nation's agricultural heartland, food was transported here, processed, and shipped anywhere in the country. Over a million head of cattle were processed annually in the heyday of the stock yards in the West Bottoms.* Grain elevators stored the grain that was milled and converted into flour and baked goods.

Other manufacturing followed agriculture to take advantage of centrality, river and rail. Henry Ford built the first auto assembly plant outside of Detroit here in 1912. General Motors soon followed suit at Leeds and Fairfax. Joyce Hall started Hallmark in 1910, kicking off a regional specialization in printing that continues to this day.

The advantages of centrality for processing and shipping goods probably reached their peak economic influence in the 1950s as the Kansas City region experienced its highest level of net in-migration — 90,000 people over the decade — and its highest metropolitan ranking as the 19th largest metro area in the U.S.

A "Back-Office" Town

Kansas City RailyardsSeveral things conspired to diminish centrality's ability to spur the progress of metropolitan Kansas City. The flood of 1951 caused meatpackers to consider replacing their aging Kansas City plants. The technology of cattle and grain production began changing in favor of processing nearer the place of production.

And, most importantly, the U.S. economy began its inexorable shift from producing goods — where minimizing shipping costs is of particular importance — to producing services. With this shift, proximity to markets — largely concentrated on the coasts — gained importance.

As a result, demand for centralized processing declined, though most goods continued to move through here. Meanwhile headquarters moved closer to markets. Kansas City became a “back-office” town and a distribution center for freight. Important work, to be sure, but not the kind that typically generates above-average growth in either jobs or income.

In the last quarter of the 20th century, the base of the U.S. economy shifted further, so that the primary value added by American workers was not the production of goods and services themselves, but the information needed to produce them better, faster, and cheaper. In an information economy, a premium is placed on speed — speed of processing and transmission of course, but also speed of knowledge discovery, speed of transforming discoveries into products and services, speed of getting them to market.

In short, “Innovation, innovation, innovation” supplanted location as THE critical factor for business success.

But as a back-office town that mainly applied the techniques developed elsewhere, the Kansas City area economy experienced difficulty in transforming itself to acquire the necessary innovation capacity. In the 1970s, it was unable to provide enough jobs for its residents, and experienced a net out-migration of 45,000 people, mostly young baby-boomers looking for their first job. In the early 1980s, the region permanently lost 30,000 manufacturing jobs and employment growth lagged behind the nation.

A Growing Focus on Information and Technology

Sprint Campus, Overland Park, Kan.From this low point, the Kansas City area economy began to recover its footing. The growth of Marion Labs, Sprint and DST signaled the region would not be left out of the shift to an information and technology economy.Firms like Cerner and Garmin followed in their footsteps.

Even though Marion's successive mergers eventually led most of its local pharmaceutical operations to leave the region, this was at least partially offset by the growth of animal health firms like Bayer and the endowment of the Stowers Institute to conduct leading-edge life sciences research. The creation of the Kansas City Area Life Sciences Institute (KCALSI) marked the community's determination to become a top-tier research center.

Because of the area's success in adapting its economy to meet new demands for information-based services and products, employment began to again grow near national averages. Indeed, during the 1990s, the region again attracted 80,000 more people than it lost, a net migration level near its record 1950s level.

Unlike the 1950s, the net migration was not caused by exceptional economic growth. Rather, it was the result of average growth and weaker-than-average growth in locally available labor. This slow labor force growth was due to the small size of young age cohorts entering the labor force, a legacy of the out-migration during the 1970s.

Will average growth be enough in the 21st century? Will average growth be sufficient to allow for improving standards of living when the competition from increasing globalization raises at least the possibility that average economic growth rates in the U.S. could fall? Or do we need to be great at something to assure the region's future prosperity?

Using Metro Outlook's economic model, the indicators that measure our progress, and your feedback, we hope to be able to answer some of these questions.

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