Tuesday, April 23, 2013

Economic Geography Of Innovation

The rent is too damn high? Now, hold on just one gosh-darn minute. The New York Times begs to differ:

Of course, not everything that wealthy New Yorkers spend money on is cheaper here. Housing, after all, is absurdly expensive, even for the rich. Complex zoning regulations and limited land make it all but impossible for supply to grow alongside demand. Still, it’s somewhat unfair to compare housing costs here to those in a place like Buffalo, or even Atlanta, since perks like access to amenities and unusually lucrative jobs are baked into the cost of New York real estate. Yet those higher rents all but ensure that tenants will appreciate an amazing bakery or a fancy shoe store — and that retailers will have to lower prices to compete for their business. Regardless, the rent burden isn’t actually as onerous as people assume: the typical resident here pays roughly the same share of her income in rent as does her counterpart in Los Angeles, Chicago, Philadelphia and Houston, according to N.Y.U.’s Furman Center for Real Estate and Urban Policy.

Okay, we're talking about the wealthy. The journalist goes on to discuss the flip side of the story. How push-factors are reshaping NYC demographics:

Between these competing forces of higher-paying jobs and high living costs, the high costs seem to be winning out. As I talked to Handbury, I began to realize why, in part, New York seems so wealthy. It’s not so much that the city has been colonized by hedge-fund millionaires (though it often feels that way) as it is losing its lower classes. The greater New York area now has the longest average commute in the country (35 minutes, compared to a national average of 25). Many of the less-educated are leaving the metro area altogether: from 1980 to 2010, the population of college-educated workers rose by 73 percent, while the population of workers without college degrees fell by 15 percent, according to Rebecca Diamond, an economics graduate student at Harvard.

Overall population loss associated with substantial gains in the number of college-educated are an indicator of intense, rapid economic development. Real estate refugees tend be in the lower classes and cannot benefit from the agglomeration spillovers of the Innovation Economy. The rent is too damn high.

Manhattan isn't the only place where top talent is clustering. The rent isn't too damn high for anyone in Cleveland or San Antonio. One doesn't have to go to NYC anymore to get a piece of the globalization action. For creative practices such as software development, the world is flat:

Lua’s international success was facilitated by Lua’s increasing ability to fill a particular niche. Lua is especially useful for providing end users with an easy way to program the behavior of a software product without getting too far into its innards. The number of projects around the world needing such functionality is quite significant. Their number, however, is quite small in Rio, where most software projects involve building web applications, a task for which Lua was poorly suited. Rodrigo’s company was seeking to mend this -- his project ultimately aimed to extend Lua to web development. Until he succeeded, though, Lua was a better fit for foreign projects.

Cutting local ties is not enough, however. Global ties must be formed and exercised. For Lua, its team’s integration into the international world of academic computer science provided an early start. In 1996, the team published a paper about Lua in a U.S. journal read widely by American software developers, including videogame engineers at LucasArts, who decided to integrate Lua into one their games. Thanks to LucasArts programmers, Lua soon had friends in the right places. In 1998, LucasArts engineers advocated for Lua at the Games Developer’s Conference, the world’s largest game development event, in San Jose, California. Quite soon, other companies were decided to incorporate the language into their products as well.

Lua’s relative isolation in its early life turned into an unexpected strength. JavaScript, although widely used, is often condemned as an “ugly” language. Such ugliness is the flip side of its popularity: The language bears battle scars of the so-called browser wars of the late 1990s, when Netscape and Microsoft fought for browser market share. Yet fixing JavaScript’s problems would be nearly impossible due to its ubiquity and would have required somehow correcting the myriad web browsers and websites that rely on older versions of JavaScript. Lua, in contrast, could turn its back on its past several times. In fact, seeing no commercial prospects for Lua early on, the team had decided to make the language free. It has since focused on elegance and usability.

The Rio innovation did nothing for the city and Brazil. Most of the positive externalities were bottled up in Silicon Valley, where the rent is too damn high. Knowledge flows are global. The benefits are not. You either live in Greater Greater New York, or you don't.

That worm seems to be turning. The talent is too damn dear. Why pay Silicon Valley wages when you can count on a glut of CMU graduates staying in Pittsburgh? Manhattan offers diminishing returns. More people can benefit from globalization in Houston.

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