Tuesday, December 5, 2023

Miami morphs into a global business hub, can it last?

A combination of pro-growth policies and the Covid-19 pandemic propelled Miami to center stage

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Seen for many decades as the unquestionable commercial bridge, if not the outright financial capital, of Latin America, Miami has now begun a transformation into a new global economic hub, thanks in large part to the demographic and economic shifts triggered by the COVID-19 pandemic. To those entrepreneurs and officials boosting something now labeled “The Miami Movement,” this strong upward growth trend is being presented as largely irreversible. However, the jury is still out in view of rapid population growth, sharply rising income inequality, and major questions about environmental sustainability.

Top US business destination

What generated the latest wave of pro-Miami buzz is a fresh Financial Times/Nikkei survey entitled “Investing in America” which in September ranked Miami as the best American city for foreign multinationals to do business in. Miami scored high in the survey for catering to the special needs of foreign companies with major new infrastructure investments, including a renovated and well-situated airport with dozens of non-stops to foreign destinations and easy access to two of the largest shipping ports in the country.

The net impact of all of this work is easy to see. In 2021, Miami attracted the most foreign direct investment per capita of any major US investment destination. Using 2020 survey data that shows a sharp decline in aggregate foreign investment in the US, the Financial Times reported that foreign direct investment in the Miami area jumped 70 per cent, with the UK, Panama, and Spain top investment sources.

Notable turnaround

Many consider Miami’s turnaround a remarkable yet steady comeback from a period of near hopelessness and even lawlessness in the early 1980s.

Before the “Miami Vice” television series made high style living in the midst of a thriving hemispheric narcotics trade something quite fashionable, South Florida had been swamped in the 1980s with tens of thousands of Cuban refugees fresh from Fidel Castro’s political prisons, the so-called “Mariel” refugees, named after the Cuban port from which they were boatlifted to Florida, approximately 125,000 by most estimates.

For a brief period in the early 1980s American law enforcement and resettlement agencies were seemingly unable to cope with the challenge of keeping the region’s cities safe while this large Cuban refugee mass, further swollen by another influx from nearby Caribbean nations like Haiti, was slowly integrated into Florida society. A major problem US officials faced was sorting the hardened criminals, legally ineligible to remain in the US, from those imprisoned by Castro’s oppressive Communist regime for so-called “political” offenses, who were in fact pardonable and eligible for normal processing and resettlement.

After this difficult period, almost extending into the 1990s, South Florida benefited from a surge in non-traditional tourism, spurred partially by the popularity of the “Miami Vice” image which drew multiple waves of style-conscious, mostly first time European visitors and generated enough prestige and income for the region to gradually overcome its daunting refugee and street crime concerns, which had actually led to numerous foreign tourist assaults and several murders.  In addition, a major storm, Hurricane Andrew in 1992, devastated a large area south of Miami’s center, spurring an extensive wave of new construction north and west of the traditional urban areas, but boosting housing availability overall and shifting the region’s population concentration northward.  This also serves as a reminder that all it takes is one “monster” Category 5 hurricane and the Miami area’s story could be completely rewritten.

All of this new tourism was in addition to a continuing heavy flow of visitors from Latin American countries, sometimes driven to overstay their visits by various political or currency crises back home, while others came and remained to capitalize on Miami’s well-deserved image as a safe haven for much of the hemisphere’s flight capital.

While the crisis period eventually faded, the Miami area’s development profile remained overly focused on tourism, construction, and financial services. Salaries remained far below the national average level as well. Those all-important technology-focused investments disproportionately landed in other parts of the state.

It should be kept in mind that as a state Florida surpassed New York in population in 2014, becoming the third largest state in population terms, but again, much of this rapid growth occurred in more affordable and less crowded areas of central and north Florida.

Can one mayor do all this?

Focusing on more recent developments, it is clear that the COVID-19 pandemic was a major catalyst for much of the population movement and financial/investment shifts over the previous three years. However, it is hard to isolate the direct impact of each the three key factors – pro-business leadership, COVID and ongoing demographic shifts – that have pushed Miami to its current status beyond noting the situation developed into a classic “perfect storm” multiplier effect.

Strongly pro-business Miami Mayor Francis Suarez has clearly made a difference, even in a state that has long marketed itself as deeply pro-business. A Republican of Cuban origin, Suarez had notable successes using Twitter to place Miami on the radar of tech companies looking to move out of high cost or over-regulated jurisdictions elsewhere, especially Silicon Valley. His personal engagement in many deals to bring new investments has also made a substantial difference, as has the availability of new world class office buildings and even glitzier residential space in radically reconfigured sections of downtown Miami that a decade ago were unattractive, if not unsafe. Beyond his focus on the tech sector, Suarez has also linked Miami deeply with the cryptocurrency movement which is wildly popular in some nearby Latin American countries, creating a “MiamiCoin” and hosting global conferences.

COVID accelerates outflow from other financial centers

The factors that sent such a rapid jolt to Miami’s status are closely intertwined. The outflow of technology and financial firms from high-cost California, and New York City, in particular, was already in progress when the COVID pandemic was declared, but the pandemic brought to the fore the recognition that for many service industries the idea of remote work was likely to become a permanent option for many employees.

Due to Florida’s less stringent COVID restrictions, a political strategy driven by the state’s Republican governor, Florida became a vastly more attractive location for individuals able to work remotely. For some, the option of long-term residence in the state, which also brought significant tax advantages, suddenly became far more practical.

Later in the pandemic real estate prices and rents jumped, reflecting the rapid shift in population. This also brought into question whether Miami can remain competitive in the medium term or might it turn out to be merely a repeat of California and New York concerning the rapid disappearance of affordable housing, ultimately undermining corporate competitiveness.

With the steady relocation of financial companies into the Miami area, the current migration pattern is seen by some analysts as significantly different than other such shifts in recent American history and have characterized it as a “migration of money,” although the data is not yet available to prove this conclusively. Another essential element in the mix is Miami’s well-deserved reputation as a playground for oligarchs, be they Latin American or Russian.

In these cases, the money had long ago made its way to American banks and has actually been important in supporting the build-up of concentrated legal expertise in large financial movements, a factor that is now, ironically, supporting Miami’s growth.

Major questions about sustainability

It does not take a PhD climatologist to zero in on the risks the low-lying Miami area faces from climate change. According to the US property platform Zillow, more than a third of Miami’s housing stock stands at risk of being inundated as sea levels rise. This however is not just a Miami area problem, but one faced by all of coastal Florida and beyond as well. Already though in some Miami area municipalities major flood control projects have been launched, with social activists noting the hundreds of millions in public money (primarily via bond issues) being spent to protect the real estate investments of the rich and ultra-rich, a formula for trouble in the future when even more public money is needed to protect middle- and low-income residential areas.  These same middle- and low-income citizens have already been hit hard by 2021 changes in Federal flood insurance policies, which until the recent changes had heavily subsidized insurance for private residences in designated flood plains near Florida’s coastal areas.

Another major issue is Florida’s limited supply of fresh water. Academic researchers and state-level officials have long understood that underground freshwater reserves are being depleted at an alarming rate, threatening the drinking water of millions, and severely damaging the complex ecosystem of the water cycle. In South Florida, the Everglades region plays a vital role in this delicate equilibrium required to maintain the so-called Florida aquifer by keeping a pressure counterbalance against saltwater from the surrounding ocean that is pushing its way into the aquifer.

While the Florida Department of Environmental Protection has an extensive plan for water management and hundreds of conservation projects, the level of saltwater intrusion, accelerated by slowly rising sea levels, has not been contained and probably will not be contained until drastic steps are taken to raise the price of water and to reduce both agricultural and residential consumption.

In view of the state’s expected population growth, freshwater access will certainly become a controversial brake on development plans, at the very minimum, regardless of which political party is running the state.

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Co-founder and Executive Director for Global Economics and Southeast Europe at NE Global Media.  Former US diplomat with previous assignments in Eastern Europe, the UN, SE Asia, Greece, across the Balkans, as well as Washington DC.


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