What This Means for the Three Americas

Several implications fall out of this new understanding of the forces of attraction. The most important is that the economic performances of cities will keep diverging over time. We have seen that America’s economic map is highly uneven. At one end of the spectrum are the brain hubs, with highly skilled and highly productive workers earning high wages. At the other end are cities whose workers have limited skills, low productivity, and falling wages. The divide between the different Americas is growing with every passing year, and now we know why.

This divergence is the predictable result of the three forces of agglomeration. These forces inevitably magnify the differences between winners and losers among American communities. Cities with the right sectors and with workers who have the right skills are strengthening their position, while others, trapped by their past, are losing ground. It is a tipping-point dynamic: once a city attracts some innovative workers and companies, its economy changes in ways that make it even more attractive to other innovative workers and companies. This tends to generate a self-sustaining equilibrium, with many skilled individuals looking for innovative jobs and innovative companies looking for skilled workers. In the end, this is why workers in Boston are paid twice as much as workers in Flint. As the forces of agglomeration reshape the economic map, this geographical divergence is bound to strengthen over time.

 A second implication is that once a cluster is established, it is hard to move it. This is a case where the future of a city depends on its past. Social scientists call it path dependency. Take, for example, the aerospace industry, which has historically been located near Los Angeles. In 1993 the urban planner Ann Markusen interviewed executives at major aerospace companies, asking them why they were located in Southern California. Their answers were very instructive. As an official at Northrop put it, “If one was building the first plant, one wouldn’t put it in L.A. Los Angeles would not even be in the top ten. But there is a terrible cost to moving.” At TRW, the answer was even more explicit: “The cost of living here is high, the traffic situation is terrible. But we’ll probably stay here.” Because of the forces of attraction, it was hard for the industry to relocate, even if the conditions that made Los Angeles attractive in the first place were long gone.

This means that regions without an innovation cluster will find it difficult to start one. It is a chicken-and-egg problem. Specialized high-tech workers will not move to a city that does not have a cluster because it will be hard to find an employer that values their unique skills. High-tech companies will not move there because finding specialized labor will be difficult. This presents a terrible challenge for communities that have fallen on hard times and are struggling to reinvent themselves.

For the United States as a whole, however, the implication is more favorable: it means that America’s innovation sector is to some extent protected from foreign competition. Because of the three forces, it is harder to delocalize innovative activity than to delocalize physical manufacturing. A toy factory or a textile factory is a stand-alone entity that can be put pretty much anywhere in the world where transportation is easy and labor is abundant. In comparison, a biotech lab or an innovative high-tech company is harder to export, because you would have to move not just one company but an entire ecosystem. If we were starting over, I am not sure that America today would be the most obvious candidate for the world’s innovation hubs. But we are not starting over. America’s innovation clusters give it an undeniable advantage over Europe, China, and India.

None of this should be an argument for complacency. The forces of agglomeration are no guarantee that we will keep our leadership in innovation forever. The lock-in effect in aerospace lasted for a while, but twenty years after Markusen’s study was published, the lock-in effect is much weaker, and the number of aerospace jobs in Los Angeles is much smaller. As we are about to discover, all the United States has is a head start.