This post originally appeared in Crain’s Business Cleveland.
In a recent Harvard Business Review piece, Roger Martin, former dean of the Rotman School of Management at the University of Toronto, detailed a changing of the guard within American firms. In 1963, nearly three-quarters of the nation’s top 50 firms were natural resource-based. By 2013, only 20% of top firms focused on raw materials. Instead, notes Martin, knowledge-intensive industries such as Apple comprised over 50% of top firms. The takeaway: Talent is the new oil.
With this economic shift also came a shift in the nation’s demographics. Stanford economist Enrico Moretti calls it the “Great Divergence”, whereby a geography of “the haves” and “the have-nots” has developed in the battle for brainpower. The “haves” are those cities that have been able to cluster a critical mass of expertise. Think Boston and biotech. San Francisco and information technology. New York and finance. What’s more, these cities have created such a center of gravity that they form “black holes” so to speak — sucking up all the capital in their wake. This is likely to continue according to Moretti.
Who are “the have-nots” in this tilted landscape? “Detroit, Flint, Cleveland,” Moretti told NPR’s Morning Edition recently. In other words, those “haves” of the industrial age became lacking today. This brings to mind a quote by legendary Motown singer Marvin Gaye. “Detroit turned out to be heaven,” Gaye said, “but it also turned out to be hell.”
Such is the nature of things. Wrote poet Robert Frost: “So dawn goes down to day, nothing gold can stay”.
Except, of course, Silicon Valley and the like, which — according to proponents of the Great Divergence — are curiously immune to future economic shocks. But what if these experts are wrong? Or more provocatively: What if Silicon Valley is the next Detroit, or a region becoming a victim of change, if not its own oligopolistic success?
One major mechanism for such a radical transformation is called “geographic arbitrage”, loosely defined as the practice of high-paid professionals moving to less-expensive areas. From the firm perspective, the movement from high-cost areas is called “capital equalization”. AOL Co-Founder Steve Case has speculated these cost-cutting mechanisms will lead to a “the Rise of the Rest” — a moniker coining the nascent reemergence of second-tier cities.
“The prediction of this view is the convergence of American communities,” acknowledges Moretti in his book “The New Geography of Jobs”. “Low-cost areas will attract more and more of the new, high-paying jobs. Cities that have been lagging behind — the Clevelands, the Topekas, and the Mobiles — will grow much faster. Bogged down by their high costs, San Francisco, New York, Seattle, and similar cities will decline.”
But Moretti goes on to note that the data don’t support this view. “In fact,” he writes, “the opposite has been happening.”
Yet there is data that do support this view. Specifically, in a new report brief I co-authored for The Center for Population Dynamics at the Maxine Goodman Levin College of Urban Affairs called “A Newer Geography of Jobs: Where Workers with Advanced Degrees Are Concentrating the Fastest”, the results suggest there is a next generation of second-tier metros that are entering into the top ranks of the knowledge economy hierarchy. Greater Cleveland is one of these metros.
The analysis found that in 2005, 11.68% of Greater Cleveland’s workforce had a graduate or professional degree, ranking the metro 22nd in the nation out of 40. By 2013, however, the region gained about 44,000 workers with a graduate or professional degree, bumping its percentage of workers with an advanced degree to 17%, ranking the metro 10th in the nation — one spot ahead of Pittsburgh (See Figure 1 in the report below). Greater Cleveland’s 12-point jump in the rankings was third largest in the country, behind Indianapolis and Providence. Moreover, the region’s change in its concentration of highly skilled workers from 2005 to 2013 was fifth largest, behind Washington, D.C., Providence, Indianapolis and San Francisco.
Now, in terms of broader economic growth, why does a concentration of highly educated workers matter? From the report brief:
“[A] region’s highest-educated workers are likely to be job creators, not just job consumers. This primarily comes about two ways: (1) through direct job creation, such as a research doctor starting a biotech spin-off firm; and (2) through indirect job creation, particularly relating to the “downstream” effect a high-paying job has on the local service economy. Put simply, more income, more spending, equals more jobs.”
Also, there is the “jobs follow people” effect. A perfect example of this is Google’s presence in Pittsburgh. Carnegie Mellon’s computer engineering program is top ranked in the nation. There is an established pipeline from Pittsburgh to Silicon Valley, yet it is a pipeline that is increasingly going two ways. Google isexpanding its office footprint in the city’s Bakery Square development. The process of knowledge transference between the regions is intensifying as well. For instance, the new dean of Carnegie Mellon’s School of Computer Science is Google Vice President Andrew Moore .
Taken together, perhaps Google sees the handwriting on the wall. Big tech, where it is housed, is becoming too costly. Specifically, attracting talent to live in Silicon Valley and San Francisco is becoming too costly. So, why not refine talent where it is produced?
“It goes without saying that no matter how much talent a company might have, there are many more talented people working outside its boundaries,” begins a Harvard Business Review piece. “Yet all too many companies focus solely on acquiring talent, on bringing talent inside the firm. Why not access talent wherever it resides?”
The Center for Population Dynamics’ current analysis suggests that top talent is increasingly residing in the Rust Belt. Again, such is the nature of things.
“Out of the huts of history’s shame,” writes poet Maya Angelou, “I rise.”