Geographic Network Effects

Sunday's Washington Post has a fascinating story about the battle between brain-drain and brain-gain cities [via Interesting People]. In essence, smart entrepreneurial people like to hang out with other smart entrepreneurial people. And whereas Cleveland was the center of cutting edge technology at the turn of the 20th century, these days it's Seattle, Austin and Silicon Valley.

While the article never uses the words "network effect," it clearly describes an increasing return to the value of moving to where the other smart people are. And given that this movement results not from business capital efficiency (which has typically driven such geographic shifts) but instead from individual quality of life decisions, the trend is uncharacteristic of recent times:

The winner-take-all pattern of the past decade differs substantially from the Rust Belt decline and Sun Belt growth of the 1970s and '80s. Then, manufacturing companies moved south in search of a low-wage, nonunion workforce. Now, talented individuals are voting with their feet to live in cities where the work is smart, the culture is cool and the environment is clean.

Migrants on the move to winner-take-all-cities are most accurately identified by education and ambition, rather than by skin color or country of birth. They are part of a striving class of young Americans for whom race, ethnicity and geographic origin tend to be less meaningful than professional achievement, business connections and income.

One of the more enjoyable fads to watch in the 90's was every city's desire to create a silicon-based moniker... Silicon Alley and Silicon Hills were probably the two best remembered (New York and Austin, respectively) but every city from Baltimore to Bombay came up with something.

As has become tremendously evident to those cities, you can't just build a Silicon Valley overnight. Besides building the culture of entrepreneurialism (i.e., failure-friendly), it's about creating a steady flow of new talent and youth as well as a mix of new cultures and ideas. It's never been a secret that major hotbeds of entrepreneurial activity are centered around major universities. But now it is clear that cities can establish "lock-in" as long as they continue to let that culture grow.