Knowledge Economy Cities vs Left Behind Places: Can the Gulf be Narrowed?

In this workshop, guest speakers Professor Maryann P. Feldman and Dr Thomas Kemeny explored the regional inequalities generated by the technological revolution and possible policy solutions.

The places in modern economies with the biggest concentrations of highly paid jobs are hubs of the knowledge economy – technology, science, finance, government, creative industries. In many countries, a gulf has grown between these places and other “left behind” places – a gulf not only of incomes, but of education levels, of age, and of political inclinations. What can be done about this? To what extent is this gulf simply the product of technological change, and to what extent might it be closed by policy interventions?

Chaired by Birkbeck’s Dr Frederick Guy, this workshop invited Professor Maryann P. Feldman (Department of Public Policy, University of North Carolina) and Dr Thomas Kemeny (School of Business and Management, QMUL) to explore possible answers to these questions.

The Silicon Valley Monopoly

Professor Maryann P. Feldman began the discussion by highlighting the enormous impact of Silicon Valley on regional growth across the US. In research conducted with colleagues at Birkbeck and the LSE, Maryann found that areas trying to replicate the Silicon Valley model of success increase the benefit to existing tech giants at the expense of other regions.

Despite the fact that digital startups can operate anywhere with no obvious location advantage and that founders prefer to keep their firms where they are first established (Dahl and Sorensen, 2012), they are concentrated in Silicon Valley.

Why is this the case?

Startups seeking external financing frequently turn to venture capital, but a condition of this type of funding is often that firms relocate to Silicon Valley. When founders seek an exit strategy, they are likely to be acquired by an existing tech giant, increasing their monopoly. Recent billion-dollar acquisitions for tech companies include WhatsApp (acquired by Facebook), LinkedIn (acquired by Microsoft) and Whole Foods (acquired by Amazon).

While these tech giants all started life as small entrepreneurial firms, they began acquisitions as soon as they had their IPO and continue to do so at a rapid rate. Maryann concluded that, while startups are generated across many different areas of the US, venture capital funding is required to scale, and securing venture capital often requires relocation. She called for increased regulation after “forty years of lax, anti-trust enforcement that corresponds with an increase in income inequality” and “a system that promotes exit rather than growing in place”.

The Gulf Between Rural and Urban: A Long-term Perspective

Dr Thomas Kemeny provided insight into the historical context for this disparity in the US, arguing that interregional inequality is due to recent major disruptive technological change.

Looking back to the 1940s, Thomas highlighted the difference between the more normally distributed inequality present at that time and the vast inequality that exists in the present between “superstar performers” and other areas. While some of the characteristics of these standout areas are to be expected, such as a higher concentration of college graduates, others are more intriguing, such as the dramatic increase in patenting activity.

From this, Thomas pointed out the relationship between the core technologies that generate industrial revolution and rising patterns of interregional inequality. The emergence of new, disruptive technology is inherently spatially uneven. As they mature, they diffuse across organisations and places and inequality reduces. This explains the reduction in inequality from the 1940s to around the 1980s, followed by an increase again as new technologies emerged. Looking back even further to the 1800s reveals a consistent pattern occurring around industrial revolutions.

If we are serious about reducing regional inequalities, there are things we can do to narrow the gaps:

  • Policy interventions that make left-behind places better places to live and work, such as progressive taxation, higher minimum wages and greater rewards for caring work.
  • Policy interventions that improve innovation in left-behind places, such as building a stronger safety net to encourage risk-taking.

However, Thomas also pointed out that closing the gap should not be the end goal; the aim should be for improvement, rather than parity.

A Complex International Picture

The presentations were followed by discussion from Professor Raquel Ortega-Argilés (Department of Strategy and International Business and City-REDI Research Institute, Birmingham Business School), who highlighted some outlier nations: South Korea, for example, has an extremely high concentration of inventors in large metro areas, but with no greater number of patents than inventors in non-metro regions, while Germany offers an example of a more balanced distribution of knowledge and innovation activity.

Questions from the audience explored how we might facilitate discussion and collaboration between regions and nations and begin to address specific problems holding back left-behind places.

We would like to thank the presenters and attendees of today’s workshop for a thought-provoking discussion.

The recording of the workshop is available here