Old Pittsburgh, New San Francisco

When considering how regional economies have changed over time, the song remains the same. At least, I see a number of similarities between the geographies of the early 20th century Pittsburgh regional industrial economy and the early 21st century Bay Area knowledge economy. Before you dismiss my comparison, consider how diverse the economic landscape is from San Francisco south to San Jose:

Silicon Valley, the wellspring of the digital technologies fueling globalization, is itself a collection of remarkably local clusters based on industry niches, skills, school ties, traffic patterns, ethnic groups and even weekend sports teams.

“Here, we have microclimates for wines and microclimates for companies,” said John F. Shoch, a longtime venture capitalist.

Silicon Valley, home of Stanford and other universities, has long been the model of success for a modern regional economy, and policy makers worldwide have tried to emulate it by nurturing high-tech companies around universities. There have been a few winners, like the semiconductor manufacturing hub in and around Hsinchu Science Park in Taiwan.

Yet a look at the microclusters within Silicon Valley demonstrates the business relationships, the social connections and the seamless communication that animate the region’s economy. It also suggests the human nuance behind the Valley’s success and shows why that success is not easy to copy, export or outsource.

“These microclusters turn out to be a very efficient way to innovate, to see what works and what fails, and do it extremely rapidly,” said AnnaLee Saxenian, an expert in regional economies and a professor at the University of California, Berkeley.

The kind of trust and specialization needed to rapidly innovate demands a close proximity of like-minded human capital. The result is a mosaic of industry clusters, not unlike the heyday of steel in Pittsburgh. The physical geography plays a big role, with water and hilly terrain frustrating the ebb and flow of workers.

But the reasons for labor and employment being in such close quarters couldn't be more different. In the case of Pittsburgh, workers lived close to their jobs. In the Bay Area, jobs locate close to the workers. The problem in the Bay Area develops when you need to dip into more than one talent pool. The rub in Pittsburgh was the inability of labor to find employment at another company, effectively tying a person to one company.

The prevailing geographic logic in Pittsburgh changed with better connections to the suburbs and improving incomes among workers. Increasing geographic and labor mobility would soon make unions vestigial, the diffusion of people putting industry at a disadvantage. The lesson of Pittsburgh's demise signals two opportunities stemming from the locational issues in the Bay Area:

1) A place sporting substantially less opportunity costs could attract a large migration of talent and the associated industry.

2) An innovator who can solve the proximity problem would spark the diffusion of human capital in the Bay Area region, unleashing another round of tremendous economic growth.

Instead of replicating Silicon Valley, try to fix what is wrong with it.