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How can places like Indianapolis reinvent themselves? Photo by Serge Melki via Flickr.

"Transformation comes from entering new markets and leaving old ones. Companies rarely transform themselves through cost cutting or improved operational effectiveness. Operational effectiveness is necessary to compete, and world-class operators can create competitive advantage, but in almost all cases, operational effectiveness is insufficient to stave off disruption and drive long-term competitive advantage." – Scott Anthony

We read a lot, and in many cases see people celebrate, the idea of "creative destruction". This notion is most popularly associated with economist Joseph Schumpeter. The concept is that innovation brings improvements to the world and fuels economic growth, but it also undermines existing ways of doing things. For example, we see online music distribution disrupting traditional CD marketing, with serious consequences for the music industry.

The positives are very real of course. In aggregate we are much better off for all of the advances that we’ve had as a country. People who think life was better in the past, I think, mostly think life was better in a past that never actually existed. Or they imagine that they would be part of the more privileged in that past without considering that they might be among the unlucky. But there are many very negative consequences to innovation too. Entire industries that used to exist now no longer do. Companies that failed to reinvent themselves for a new era often failed. This had both a financial and human toll. There’s no need for Midwesterners to dwell too much on this as they know it all too well from personal experience or front line observation.

What’s true for companies and markets also seems to be true of places as well. Most Midwestern cities would appear to no longer have that much economic relevance. They are sustained primarily on inertia and legacy economies that are in a state of decline. The challenge for them is to reinvent themselves for a new century and a new world.

This isn’t easy. Reinventing yourself requires letting go of what it is you identify as core to what you do today – never easy in the best of times, and particularly difficult in a place like the Midwest. Midwest cities need, more than anything, a game plan for making themselves relevant to the people and businesses who will be fueling the 21st century.

Many of them are attempting to do that by upgrading urban amenities. The Florida school suggests that one needs to build inspiring environments to lure people in. Then those people make your economy go. I’m sympathetic to this to a point. Over the long run in the modern economy, jobs follow people. The Sun Belt should have taught us that if nothing else. And of course I’ve championed better quality of space for our cities.

The problem is that biking trails and lanes, art galleries, light rail lines, etc. are really just the new ante in a respect. They are not going to create a differentiated environment to turn around decline, except perhaps on a relative in region basis. Consider: if you value these things, what Midwest city is going to be able to supply them in a better manner than places like Portland, Denver, or even Atlanta or Dallas? Not likely too many of them.

Back in the dot.com era, businesses used to re-brand their logos with .com at the end of them – I recall Neiman’s shopping bags for example – to show they were with it whether they were or not. Today, there’s no such thing as a "dot.com strategy". Use of the internet is simply built into the fabric of business.

This is the real challenge. To come up with the right approach to create a viable niche the modern economy. Without this, too many places are simply going to end up like buggy whip manufacturers. Cities, like companies, can become obsolete. And the toll will be large in human, financial, and environmental costs.

It is imperative that there be a vision for change that is serious, relevant, and championed by community leadership. This can mean political leadership such as that from Mayor Daley of Chicago, who has been a tireless champion and promoter for Chicago’s transformation. It could also come from other sources too, such as leadership from a motivated business community. But whatever the source of it, it has to come from somewhere.

Some might say that we can’t afford to finance this type of transformation. Two responses. The first is that we can’t afford not to. With many of our cities and states withering away, the alternative is simply not acceptable. The other is that it doesn’t have to cost a huge amount of incremental money. There’s no doubt that financial discipline, and the effective and efficient delivery of quality public services is important. It’s like Indiana Gov. Daniels recently said, "I guarantee that the principles of fiscal caution and conservatism have not gone out of style." His disciplined approach put Indiana in the best fiscal condition in the Midwest. It’s probably the only state not looking at major tax increases and/or service cuts – meaning it might be one of the few places able to invest, as it is doing with the Major Moves highway plan, for example.

The answer is not to simply throw money at the problem. Actually, we’ve been pouring money into cities for a long time, often doing more harm than good. Some cities may need to increase service levels and spending. Others might choose to spent the same or even less. But the key is to spend well, to make sure that we are investing in the service of transformation and not just spending for the sake of doing something. And with the level of investment we’ve seen in the last decade or two – much of which did in fact go for good things – I think most cities have proven that they can figure out how to find the cash for worthwhile endeavors. By all means we should be looking at ROI, however.

Whatever the individual strategies they choose to pursue, the cities of the Midwest need to step up to the challenge of transformation, lest they find themselves creatively destroyed right out of economic relevance.