Tuesday, May 26, 2015

The New Geography of Innovation

Jobs don't follow talent. Jobs follow knowledge production.

Theme: Economic restructuring

Subject Article: "Uber gutted Carnegie Mellon’s top robotics lab to build self-driving cars: A 'partnership' based on poaching."

Other Links: 1. "Pittsburgh And Migration Mesofacts."
2. "LycosBurgh."
3. "The Power of Eds and Meds: Urban Universities Investing in Neighborhood Revitalizationand Innovation Districts."
4. "The Economic Geography of Tech Talent."
5. "It’s Not the People You Know. It’s Where You Are."
6. "From Metal to Minds: Economic Restructuring in the Rust Belt."
7. "Knowledge Spillovers from Research Universities: Evidence from Endowment Value Shocks."

Postscript: For the blog post title, I'm openly ripping off Enrico Moretti's book, "The New Geography of Jobs." The economic geography Moretti describes is in decline. More technically, it is converging, "Soaring housing costs forces talent to flee Silicon Valley." The jobs that once clustered in just a few winning places are diffusing around the country. The same industry cycle that took down manufacturing:

But what about the original question—whether it's possible to build a technology platform company outside Silicon Valley. A platform company builds technology used by other technology companies, from the iPhone that runs other applications to the Facebook login we use to access other websites, compounding each employee's leverage. This is why Facebook's market value exceeds $20 million per employee.

These companies don't have to worry about expenses much. As my first mentor in Silicon Valley, Kirill Sheynkman, once explained to me at a French restaurant, the point in an innovation economy isn't to spend less, it's to make more. And for a platform company, the value of being close to the technology companies that build on your platform is priceless.

But as our industry matures, the pressure will be on profits, not just revenues. And few high-tech companies get as much leverage as Facebook from each employee. Even a platform company like Twitter is worth about four times less per employee than Facebook. With less equity to burn, Twitter has had to be the pacesetter in raising San Francisco engineering salaries, which is why its stock is now under so much earnings pressure. Only the techiest of tech companies—and only their tech people—don't feel the pinch.

Not only is it possible to build a technology platform company outside of Silicon Valley; the financial bottom line demands it. So eroded Detroit's competitive advantage in the automobile industry. So eroded Pittsburgh's competitive advantage in the steel industry. What's next? Read "From Metal to Minds: Economic Restructuring in the Rust Belt."

Tuesday, May 19, 2015

The Economic Geography of Tech Talent

The tech talent apple doesn't fall too far from the university tree.

Theme: Emerging economic geographies

Subject Article: "The truth about life in 2015 at Stanford, where 21-year-olds are offered hundreds of thousands of dollars right out of school."

Other Links: 1. "Ernest George Ravenstein: The Laws of Migration, 1885."
2. "Economic Geography Of Talent Production."
3. "Stanford University Is Dying."
4. "From Metal to Minds: Economic Restructuring in the Rust Belt."
5. "Silicon Valley is already dead."
6. "Comparative Localization of Academic and Industrial Spillovers."

Postscript: Private firms don't cluster near each other to reap some sort of density dividend. They aim to be as close as possible to a research university seeking proximity spillovers from the knowledge production for public good. Density doesn't drive innovation. It is an effect of innovation.

Monday, May 18, 2015

Technological Innovation Begets Migration

In a virtuous circle, migration and innovation make the world go round.

Theme: Innovation geography

Subject Article: "In the age of disruptive innovation, adaptability is what matters most."

Other Links: 1. "Space and the city: Poor land use in the world’s greatest cities carries a huge cost."

Postscript: This post was inspired by the latest paper from Chang-Tai Hsieh and Enrico Moretti, "Why Do Cities Matter? Local Growth and Aggregate Growth." Artificial housing supply constraints are deemed to be a drag on economic output. That assumes lower housing prices would allow more people to live in the most productive places. That is, lower housing prices would beget higher population. Which raises the question, how much do housing prices affect inter-regional migration and population change?

Thursday, May 14, 2015

Stanford University Is Dying

You go where you know. You went to the wrong college and spent too much money.

Theme: Innovation geography

Subject Article: "How to Survive the College Admissions Madness."

Other Links: 1. "Silicon Valley Is Already Dead."
2. "From Metal to Minds: Economic Restructuring in the Rust Belt."

Postscript: The a-ha moment came while reading about how the regional economy in Waterloo, Ontario thrived despite the demise of Blackberry. The pursuit of tech transfer is the holy grail of economic development. Pittsburgh desperately tried (still tries) to hit on its own Blackberry. This quest spurred world class knowledge production at Carnegie Mellon University. That asset, as it turns out, drives economic restructuring.

Tuesday, May 12, 2015

The Third Globalization: Human Capital and Demographic Decline

Half of the world lives in a country where the number of births fails to replace those who die.

Theme: Ironic demographics and globalization

Subject Article: "Investing in People as an Economic Growth Strategy."

Other Links: 1. "The Rise (and Likely Fall) of the Talent Economy."
2. "Extensive and Intensive Globalizations: Explicating the Low Connectivity Puzzle of US Cities Using a City-Dyad Analysis."
3. "Boston Versus Silicon Valley: Advantage Beantown."
4. "From Metal to Minds: Economic Restructuring in the Rust Belt."
5. "Peak Talent."

Postscript: "Rich countries' populations are beginning to shrink. That's not necessarily bad news":

Demographic decline worries people because it is believed to go hand in hand with economic decline. At the extremes it may well be the result of economic factors: pessimism may depress the birth rate and push up rates of suicide and alcoholism. But, in the main, demographic decline is the consequence of the low fertility that generally goes with growing prosperity. In Japan, for instance, birth rates fell below the replacement rate of 2.1 children per woman in the mid-1970s and have been particularly low in the past 15 years.

As economic prosperity diffuses, so will demographic decline. How we manage that demographic decline will define economic geography.

Wednesday, May 06, 2015

Pioneer Migration

Attract one person and an entire village will follow.

Theme: Brain drain is economic development.

Subject Article: "The Salvadoran town where migrants are hotly debated folk heroes."

Other Links: 1. "Baltimore puts out welcome mat for immigrants, hoping to stop population decline."

Postscript: In recognition of persistent urban poverty, Baltimore's stated goal of population growth is indicative of the dysfunctional politics in that city. How about better schools? Population data are an indicator, not a means to an end. Stop treating immigrants like a number and recognize that people develop, not places.