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Tech hubs and city credits - what happens when the programmers move out?

Tech hubs and city credits - what happens when the programmers move out?

The US only has a few key technology hubs. They are in places like Silicon Valley and Boston. But the country needs to become a nation of tech hubs. Our current ones have enjoyed enormous wealth and prestige because of the technologies borne in them. The country needs to extend these technologies to the hundreds of other cities whose traditional industries have transferred overseas or been rendered obsolete.

The shift to technology workers operating remotely because of COVID seems like the opportune time for such a technology diffusion creating new tech centers. For all the proclamations by local leaders that their cities are now tech hubs, there is little evidence that the traditional cities at the center of American technology have lost their dominance. Things have not changed much, really. Investors should bet on the old tech centric cities to keep their winning technologies after the pandemic years. The dominant cities will remain dominant, and this will support their economies and credits.

Smart Cities are not enough

The effort to imbed cities with the benefits of technology is most visible in the ubiquitous Smart Cities effort. The Smart Cities movement seeks to bring greater productivity, sustainability, and livability to today’s cities.[1] And while it has clearly influenced the direction of city development, it has not been able to spread the technology creation of a handful of American tech hubs across the nation in fifty years. There has been an expansion of technology companies across the US but not enough to offset the regional declines.[2]

A tech hub combines an elevated level of human capital in the form of universities, tech workers, knowledge workers, and educated workers. These hubs also have access to sources of capital from formal and informal financial institutions. The likes of San Francisco, CA, San Jose, CA, and Boston, MA usually lead the list. The impact of tech centers is not equal, though. The economic effect of tech activity in a Seattle or San Jose would continue to be dominant, even if smaller towns are nice places for analysts to live.

COVID is the new challenge

Since 2019 American cities have seen a vast change in workforce location. And a great diaspora of technical talent has occurred. Tech centers are not immune from the creative destruction of work-from-home and eCommerce or the actual destruction of the inner cities of Seattle, WA, Portland, OR, and New York, NY. The years of 2020 and 2021 have provided a power keg of force for technology diffusion in the US. But merely moving programmers does not move the source of important technologies.

Key technologies are disruptive technologies

Tech hubs are clearly different from the average city. Their human capital offers them distinctly different possibilities in our pandemic age from the usual city. They retain the key elements of disruptive tech—the founders.

Most American cities may well face a more difficult financial future after COVID. There is no guarantee that it will continue to receive the supplemental Federal and state aid of the COVID period. The damage done to the workforce and the city infrastructure may reverse years of urban renewal.[3]

Tech hubs will do better

For the purposes of technical diffusion, we will restrict the technologies to truly impactful “disruptive” technologies. Looking at data from several sources including patents between 1976 and 2016 gives us a lengthy list.

The National Bureau of Economic Research’s Working Paper The Diffusion of Disruptive Technologies identified the following as key new technologies: 3D printing, autonomous cars, bispecific antibodies, cloud computing, computer vision, drug conjugates, electronic gaming, millimeter waves, fingerprint sensors, fracking, GPS, hybrid vehicle/electric cars, lane departure warnings , lithium batteries, machine learning/AI, mobile payments, OLEDs, online streaming, RFIDs, search engines, smart devices, social networking, software defined radios, solar powers, stent grafts, touch screens, virtual reality, Wi-Fi, and wireless charging.[4]

We have seen many innovative technologies that challenge existing business structures but few new disruptive tech centers if we look at the NBER’s map of pioneer locations.

Source: Panel A, single map, from page 54 of PDF The Diffusion of Disruptive Technologies from the National Bureau of Economic Research shown here as a matter of fair use for analysis.

This map shows that disruptive technologies originated in geographically concentrated areas, which will retain the benefits of this work over an extended period. The labor migrations will help cities of course but the core tech centers are unlikely to change much going forward. As the National Bureau of Economic Research paper The Diffusion of Disruptive Technologies said,

“Finally, because of the slower spread of high-skill jobs, disruptive technologies continue to offer long-lasting benefits for their pioneer locations, which retain a long-term advantage in these high-quality jobs for multiple decades.”

Clearly the cities with pioneer tech hubs will continue to have their credit supported by innovative technologies even with the diaspora of technical talent.

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[1] Hyung Min Kim, Soheil Sabri, Anthony Kent, Chapter 2 - Smart cities as a platform for technological and social innovation in productivity, sustainability, and livability: A conceptual framework, Smart Cities for Technological and Social Innovation, Academic Press, 2021, Pages 9-28,ISBN 9780128188866, https://doi.org/10.1016/B978-0-12-818886-6.00002-2.

[2] Andrew J. Van Leuven and Edward W. Hill, (2021) Legacy regions, not legacy cities: Growth and decline in city-centered regional economies, Journal of Urban Affairs, DOI: 10.1080/07352166.2021.1990775.

[3] Glaeser, Edward L. “Urban Resilience,” Urban Studies 59, no. 1 (January 2022): 3–35. https://doi.org/10.1177/00420980211052230.

[4] Bloom, Nicholas, Tarek Alexander Hassan, Aakash Kalyani, Josh Lerner, and Ahmed Tahoun, “The Diffusion of Disruptive Technologies,” National Bureau of Economic Research, NBER Working Paper Series, Working Paper 28999, July 2021, Revised November 2021: 43.