Can Policymakers Create Many More Silicon Valleys?

Many policymakers understandably would prefer if high-wage, high-skill jobs could be created more broadly across a country, instead of clustering in a relative handful of locations. In other words, can workers and jobs be dispersed more broadly, instead of remaining concentrated spatially, in Silicon Valley or Mumbai or Shenzen.

Local policymakers--especially--might prefer that well-paid “cognitive non-routine” workers live and work in their dispersed communities, and not in a relatively few cities. 

Rise of the Rest, the venture capital firm that aims to fund seed stage companies located across the United States, but not in Silicon Valley, New York or Boston, is one example of a bet on overlooked CNR talent.

Indeed, the argument that “good broadband” is the underpinning of economic growth for rural areas, small towns and cities is an unexamined claim very similar in its assumptions. 

But a new study conducted for the Federal Reserve Bank of Richmond suggests the difficulty--or futility-- of such efforts. In fact, the researchers actually recommend that concentration be encouraged. “The concentration of CNR workers in a few ‘cognitive hubs’ should be encouraged, not scorned,” they say. 

Basically, they argue, it is not possible to create big CNR job concentrations in most locations. Instead, 

“Contrary to some previous literature and much of the public discourse, the economics of the problem suggest that, with the appropriate transfers, small industrial cities in the U.S. should attract non-CNR workers and not try to become the next San Jose,” the study lead by Esteban Rossi-Hansberg of Princeton University, Pierre-Daniel Sarte and Felipe Schwartzman of the Federal Reserve Bank of Richmond says. 

Arguments about high-quality broadband take the same general approach to causation: good broadband creates the foundation for economic growth. The general economic problem, though, is similar to the issue of dispersing CNR jobs. There appear to be externalities that mostly prevent big CNR clusters from emerging in most locations. 

Though policymakers are correct to worry about occupational and wage gaps, the Federal Reserve study suggests the near-futility of efforts to create many additional dispersed concentrations of CNR workers and jobs. 

Since the 1980s the U.S. economy has experienced increased skill and occupational polarization based on geography. Large cities increasingly have more highly educated workers in “cognitive non-routine” jobs that also are paid more than workers in non-cognitive roles.

At the same time, many medium and small cities have suffered an exodus of skilled workers and population. Income inequality between occupations arguably has grown. 

This growing gap between top and medium and small-sized cities has motivated policymakers and city governments to advocate policies to attract CNR workers to smaller towns. 

If that sounds like the arguments for investing in municipal broadband, it is precisely so. The argument is that quality broadband underpins economic growth. But there is not much evidence that broadband--in and of itself--actually causes such growth. Some might note the productivity paradox as well, the finding that advanced technology actually does not clearly seem to drive economic results. 

Neither is there clear evidence that broadband improves productivity. You would be hard pressed to find any evidence for the thesis that broadband clearly boosts firm productivity, even if we all seem to believe that is the case. Some studies that find some small benefit cannot separate broadband from the other information technology introduced at the same time. But most of the time, it is hard to identify a clear correlation, much less causality.

As a practical matter, governments and others will continue to argue that broadband service has to be improved, because, you know, productivity will improve and economic growth will be aided. And, as a practical matter, firms will continue to deploy, and customers will buy, better broadband.

Still, it is worth noting that there is scant proof that broadband improves productivity.

“We find that the average effect of UFB (ultra-fast broadband) adoption on employment and... productivity is insignificantly different from zero, even for firms in industries where we might expect the returns to UFB to be relatively high,” say researchers Richard Fabling and Arthur Grimes,

One study found no correlation between broadband and productivity, when looking at digital subscriber line deployments. Another study also found no causal link between broadband use and productivity.

Yet other studies suggest that firm using more information technology, including broadband, do raise productivity, though it is not clear whether it was the broadband or the other innovations that contributed.  

Some studies note that it is difficult to tell which came first: a firm’s ability to wring value out of information technology, or broadband enabling that for a firm.

“One view is that good firms with good managers do most things in a better way, including use new practices at the right time,” note researchers from Stockholm University. “This makes studies of the impact of innovation, new management practices, work organisation and ICT use meaningless, since the good firms are much better in many other ways which are and can not be measured.”

The point is that social engineering, even when motivated by legitimate concerns, is tough to impossible.