Dec 9, 2019

Kick-starting tech hubs beyond the usual-suspect cities

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Reproduced from Brookings and ITIF analysis of Emsi data; Chart: Axios Visuals

Tech-based economic growth has become so concentrated in the top 5% of metro areas that experts are proposing a federal push to jump-start new tech hubs in the heartland.

Why it matters: This divergence of economic realities between the top "superstar metros" and almost everywhere else shows how powerful clusters of skilled workers, jobs and investment have compounded the success of booming cities and left widening gaps among regions.

Driving the news: On Monday, the Brookings Institution and the Information Technology and Innovation Foundation (ITIF) released an ambitious proposal to spread the innovation economy more evenly across the country.

  • The idea is to provide 10-year R&D funding and regulatory benefits to 8–10 promising metros that have the right ingredients for success outside of existing tech hubs.
  • "This is not an attempt to put 300 troubled places on a Silicon Valley pathway," said Mark Muro, co-author of the report and policy director at Brookings. "The thesis here is to identify some up-and-coming places that are closer to the kind of self-sustaining ecosystems that can in turn contribute more growth."

What's happening: "Most notably, just five top innovation metro areas — Boston, San Francisco, San Jose, Seattle and San Diego — accounted for more than 90% of the nation's innovation-sector growth during the years 2005 to 2017," per the report.

  • That's not to say other metro areas didn't see some growth in this sector. Cities like Denver, Atlanta and Salt Lake City increased their share, but their gains were smaller than those in the top five. Most metros have stayed relatively flat or lost innovation-sector share.

The top cities have become so expensive that investors and companies are expanding to non-U.S. tech hubs like Tel Aviv, Vancouver, Bangalore or Singapore where they can operate more cheaply but still have access to skilled talent and supply-chain networks, said co-author and ITIF president Rob Atkinson.

  • Other U.S. cities like Indianapolis or Columbus don't yet have the critical mass of tech assets needed to take off. States and cities only have so much money to invest.
  • Only the federal government, Atkinson argues, can target significant resources to places that are close to being strong innovation hubs in order to get those places to "escape velocity," which he argues is a matter of global competitiveness.
"The risk now is that Silicon Valley and other successful tech hubs will get weaker without action because their costs will continue to spiral, making the places and the companies in them less competitive."
— Rob Atkinson

How it would work: The proposal suggests federal outlays of about $100 billion over 10 years. The money would be distributed after a "rigorous competitive process" selects 8–10 metro areas that have demonstrated the most promise in becoming tech hubs in their own right.

  • Criteria would include: a population greater than 500,000; sizable levels of existing university R&D; a highly educated population in STEM fields; a distance of at least 100 miles from a "superstar" metro.
  • Potential contenders could include: Madison, Wisconsin; Minneapolis, Minnesota; Pittsburgh, Pennsylvania; Chicago, Illinois; Nashville, Tennessee.

The other side: There are bound to be objections to this plan.

  • One question is where the money for this kind of investment would come from at a time when the government has dramatically scaled back R&D spending.
  • There will also be critics who believe the government does not have the ability to pick "winners" and that trying to re-create Silicon Valley elsewhere is a fool's errand.

In response, Muro and Atkinson argue that the federal government has historically played a role in economic development, as its investment helped spur the beginnings of Silicon Valley and Research Triangle Park in North Carolina.

  • And they say it's less about copying Silicon Valley than it is about supporting new tech hubs with their own focus.

Our take: It would take an enormous amount of bottom-up support from states and cities for a proposal like this to gain traction in Washington. But it's one the tech industry might be willing to get behind to help counter its coastal elitist image.

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