Although the high-tech innovation sector can be seen as a crown jewel of the U.S., spurring astonishing innovation and creating new wealth and jobs, a new Brookings reports authored by Robert D. Atkinson, Mark Muro, and Jacob Whiton presents a more sobering view that the industry is creating deeper divides throughout the country.
It says that just a few “superstar metros” — Boston, Seattle, San Diego, San Jose, and San Francisco — dominate, serving as magnets for wealth and talent that pull both away from other regions. This gap is growing, creating problems not just for the areas that are left behind, but for the superstar metros, too. The report makes the case that federal intervention, in the form of aggressive financial investment in other U.S. cities, is imperative.
The catch-all term for the problem is “agglomeration,” which generally means a massive collection of things, and in this context refers to how large companies located near one another in urban areas create and share significant benefits. Looked at one way, that would seem to be a net positive. But, the Brookings report says, “substantial evidence now suggests that agglomeration brings with it strong self-reinforcing tendencies that not only do not support the ‘spread’ of development but are likely to exacerbate its concentration.” In other words, the positive effects of agglomeration in those few metro areas are creating negative effects elsewhere.
“Rather than growing together, the nation’s regions, metropolitan areas, and towns have been growing apart — and that has been a shock, including for an economic and policy mainstream that has long trusted the self-regulating, welfare-enhancing nature of the regional economics market,” reads the report.
It says that those five metro areas accounted for more than 90% of U.S. innovation sector growth from 2005 to 2017, while 343 metro areas lost share over the same time period. “Fully one-third of the nation’s innovation jobs now reside in just 16 counties, and more than half is concentrated in 41 counties,” says the report.
Some of the side effects of such an imbalance are obvious — wealth and jobs in the high-tech sector aren’t as abundant outside of a few major metros, and that leads to a talent drain from other regions. But ironically, according to the report, instead of merely creating an unfortunate gap between regional haves and have-nots, agglomeration has caused livability problems in those few metro areas, too — another sort of drain. Housing prices and the cost of living in places like San Francisco have increased, forcing people to live further away from work and necessitating commutes that create traffic congestion. It’s also worsened the problem of homelessness in those areas.
The report draws a line from the “skyrocketing costs of the most successful tech hubs” to the movement of further investments to other locales. But because there’s a shortage of “vibrant lower-cost hubs,” reads the report, “The result is that investments flow to places such as Bangalore, Shanghai, Taipei, or Vancouver, rather than Indianapolis, Detroit, or Kansas City.”
Federal dollars needed
The report is pessimistic that markets will eventually solve these problems. It dispenses both with the notion that the U.S. any longer has a “converging” economy in which “regional unevenness” would resolve itself without direct intervention and with the hope that “bottom-up technology-based economic development efforts” can turn the tide. In the case of the latter, the report asserts that local and regional resources are too limited by themselves to combat the patterns of agglomeration. (One could argue that may be true in the aggregate, but not necessarily within individual locales.)
The only way forward, it posits, is through targeted federal intervention. “The nation should counter regional divergence by designating eight to 10 new regional ‘growth centers’ across the heartland,” it reads.
The concept borrows from the “growth pole” strategy of the mid-twentieth century, which the report defines as “regional economic planning that called for focusing transformative investment on a limited number of locations to catalyze the takeoff of those regions and the nation.” It calls for approximately $100 billion of federal investment in these select areas over the course of a decade that would support research, regulatory benefits, and placemaking. (“Placemaking” is a broad term for making areas attractively livable through things like coworking spaces and startup accelerators, high-quality and affordable residences, and amenities like art centers and restaurants.)
The report goes into great detail about its proposal, but there are two overarching parts to it:
- Assemble a major package of federal innovation inputs and supports that would be awarded to organizations in select metropolitan areas not near existing tech hubs in order to support transformative innovation sector scale-up.
- Establish a rigorous and competitive process for selecting the most promising potential growth centers to receive the awards
The report provides a list of possible contenders. The authors benchmarked 382 U.S. metropolitan areas and filtered for factors such as population (at least 500,000 residents), regional innovation capacity (rates of STEM R&D spending), and the skill base of the local labor force to create an Eligibility Index. Further filtering excludes giant regions like New York and L.A.; large metros that are already within 100 miles of an innovation center, like Baltimore and Philadelphia; and already-thriving areas like Raleigh, North Carolina and Austin, Texas that wouldn’t see as dramatic a benefit from the investment as other locales. That leaves some 35 areas in the U.S. that the report posits would be prime candidates for federal investment.
Challenges and viability
The report presents, in brief, several viewpoints that object to all or parts of the authors’ proposal, including those from Vivek Wadhwa, Marc Andreessen, and Josh Lerner. But the authors assert that federal funding and strategic regional investment was instrumental in past growth in the U.S., most notably in Silicon Valley itself, through academic, industry, and defense research, and so the precedent and success strategy both exist.
The report concludes: “In short, then, the time is right for a major push to counter regional divergence at a time of crisis. While it does not represent the sum total of federal effort needed to revitalize the nation’s left-behind places, a robust growth centers initiative represents a crucial element of such an overdue push. The nation should begin the work. A feasible framework — and promising potential participants — now exist for spreading innovation-driven growth across much more of the nation’s patchy and divided map.”