Back near the end of the 19th century, one of my heroes, Alfred Marshall, spoke of a concept that is now known as Agglomeration Economics.
In brief, it states that proximity has it advantages. He said that some industries seem to cluster in certain geographic areas. This was due to three basic factors:
1) A skilled labor force locally
2) The spillover of local knowledge
3) Local supply linkages
He often used the example of Sheffield cutlery makers and how many competitors clustered in a relatively small geographic area. He described it as “the mysteries of the trade became no mysteries; but are as it were in the air, and children learn many of them unconsciously.” A bit flowery, for sure but I firmly believe this is happening in the United States as I write and will continue for some time to come.
Much has been made of the urban/rural divide and how as small towns across the country are emptying out and job prospects for young people have all but disappeared. Many towns in the plains are closing schools and suffering from an acute shortage of doctors and close by hospitals.
Yet also happening but without a huge amount of press is that mid-sized cities are also dying (some rapidly) and there is little hope that promised industrial revitalization will succeed in most localities.
Over the last few weeks, I have spent much time on You Tube watching economic development videos from a wide variety of cities. The message is always upbeat and the promises big. Visit some of these cities and what you see, sadly, is despair and a hopelessness especially among the young people.
It is not their fault. The local kingpins are sincere, but the odds are steeply stacked against them.
Consider the Marshallian concept of Agglomeration for a few moments. It is not new. Many of you, like I, worked in advertising. Why did Madison Avenue thrive as an advertising mecca for so long? The talent pool was there. I worked at the old NW Ayer agency in the New York in the mid-70’s. Two other substantial agencies were in the same building (Marshalk and Marsteller). Twice I caught co-workers getting on the wrong elevator. They were much more carefully dressed than normal, telling a youngster like me that they were going for an interview at a competing agency in the same building.
Why did the TV networks keep their sales teams in New York even though programming came out of the West Coast? Easy. The ad agencies spending the network big bucks were largely in New York.
In the financial world, Wall Street dominated and real shooters in the money management game at the time were New York based.
Detroit was the auto capital, Houston ruled oil and so it went.
Nowadays, we have long been in a post-industrial economy. The information age rules but the same Agglomeration effect has taken hold.
Microsoft was headquartered in the Seattle area. Some say Paul Allen cajoled Bill Gates to leave Albuquerque and come home to Seattle. The company took off and created thousands of jobs and was a magnet for tech people.
Silicon Valley in Northern California also became a tech hub and Venture Capitalists gave the hungry and brilliant founders of hundreds of startups the funds they needed to launch. Since then, some tech hubs have emerged throughout America. The leaders are Silicon Valley, Seattle (greatly helped by tech savvy Microsoft alumni), Boston, and Brooklyn. Lesser lights but impressive are Boise, Idaho and Anne Arundel County, Maryland among others.
We have all read how Jeff Bezos started selling books from his Seattle area garage. What you may not have considered how lucky he was to have an enormous pool of locals who helped him to achieve scale and unfathomable growth as he expanded the product line for Amazon. Seattle had the three variables that Alfred Marshall outlined a century earlier.
Interestingly, Amazon is often building their distribution centers in areas that were once vibrant manufacturing towns. Many of these localities were located on railroad, highway or river inks that allowed them to ship their products quickly and inexpensively. In fact, Amazon has warehouses in abandoned factories or locations of the former manufacturing sites.
I wish all the smaller cities and towns well. However, as their base had eroded, airlines have drastically cut the number of flights to and from their home. Major 21st century companies look for airline hubs for headquarters.
This is the new reality and turning it around is a herculean task.
I wish all my United States readers a Happy Thanksgiving.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
