San Francisco isn't the only place for tech.

Photographer: Chip Chipman/Bloomberg

Why Geographic Equality Matters

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I argued last week that the high cost of housing in cities such as New York and San Francisco has a bright side for the larger U.S. economy: As people who would like to live in these highly desirable but dauntingly expensive areas are priced out, they choose instead to settle in upwardly mobile communities that benefit from the new talent and wealth.

That's because geographic equality matters. An environment in which high value economic activity happens in just a handful of cities would make the country worse off, and ultimately starve those cities of what they need to thrive -- talent and ideas.

One critique of this geographic equality argument is that big cities, and large states more generally, already pay more than their fair share to society. They contribute a larger share of federal taxes than they receive, and they're underrepresented in the U.S. Senate relative to their population -- California has the same number of senators as Wyoming despite having a population many times larger.

But that's only looking at one side of the ledger: Without the ability to import talent from the rest of the country and the rest of the world -- talent that the large cities didn't pay to develop -- large cities would collapse. A look at the titans of Silicon Valley shows this to be the case. Mark Zuckerberg grew up in Westchester County, New York. Tim Cook grew up in Alabama. Marc Andreessen moved around in the Midwest. Silicon Valley, you didn't educate that. In 2013, per pupil annual expenditures in the U.S. averaged about $12,000 per student, not counting higher education. Every time a talented person moves to San Francisco or New York essentially amounts to a $150,000 transfer payment from the community in which they were raised to a large city.

Although many people, in particular the young, well-educated and childless, prefer to live in large cities, many others, in particular middle-class families with children, prefer leafy suburbs with single-family homes. Large cities do not have a great reputation when it comes to K-12 education. None of the people arguing for more density in large cities are arguing to create more single-family residential neighborhoods; in fact they're arguing to convert suburbs to city-like environments. Having more metro areas with suburbs in the business of high value economic activity increases the supply of communities where these families can raise their children, some of whom will then move to large cities upon graduation. 

Keeping this talent pipeline robust is important. The urbanist Aaron Renn shows the risk facing Midwestern cities as their surrounding suburbs and rural areas turn gray. Ninety-five percent of metro Indianapolis's population growth since 2000 came from elsewhere in the state -- what happens when that population pool starts shrinking? Similarly, what would it mean for large cities if an increasingly higher share of the country becomes economically stagnant and no longer able to produce the talent upon which large cities depend?

The other problem with the desire to concentrate a higher share of tech talent in a handful of metro areas has to do with agglomeration effects -- the phenomenon that more talented people working in close proximity increases overall productivity -- is that the tech sector increasingly wants power over more and more of our lives. Any entity seeking that amount of power should have more diversity -- whether in age, gender, race, or geographic location -- than Silicon Valley does. One of the critiques of the current wave of tech innovation is that it's overly concerned with solving "Mom problems" such as housing, laundry or even dating for young, childless men. If tech activity were more spread out this might be different.

Perhaps solar energy innovation is best done in Arizona or Nevada, where Tesla is locating its Gigafactory. Perhaps problems related to self-driving cars are best solved in more car-dependent cultures such as Atlanta or Houston. Perhaps problems related to raising families are best solved in a state with a high birthrate such as Utah. Perhaps Silicon Valley's record on diversity would be better if it had more jobs in metro areas with higher concentrations of African-Americans or Hispanics. Making white male venture capitalists and top tech executives travel to flyover country every now and then might not be the worst thing in the world.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Conor Sen at conor@newriverinvestments.com

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net