KQED’s Forum host Michael Krasny held a provocative conversation Tuesday with UC Berkeley economics Professor Enrico Moretti about Moretti’s new book “The New Geography of Jobs.” The Italian-born economist describes the growing chasm between prosperous cities in the United States that are centers of education, innovation and technology – and struggling cities that were once powerhouses of manufacturing but are now losing ground.
In theory, the shift from an industrial economy to one driven by innovation was supposed to make geography matter less. In fact, Moretti says, we are witnessing a “great divergence” where the resource gap between places like San Francisco, Boston and Raleigh on the one hand, and Detroit, Cleveland and St. Louis on the other.
Moretti offers a case in point through the story of a young Silicon Valley engineer, David Breedlove:
The year is 1969 and Breedlove, just like many other professionals at the time, is thinking that urban areas were not good places to raise a family. He has a house, he has a good job in Silicon Valley, but he wants something quieter. At the time Visalia is not that all that different from a place like Menlo Park. Sure, wages are slightly higher in Menlo Park and there are slightly more professionals. But at the time, both cities have a mix of residents, both cities have decent schools and both cities have a variety of social classes.
If you look at the two cities today, 40 years after Breedlove made his choice, it’s almost like looking at two different continents. On the one hand, Menlo Park has become one of the most vital and prosperous innovation hubs of the world –Menlo Park including the communities around it, the entire Silicon Valley area. Visalia hasn’t grown in 40 years. It hasn’t added any college graduates to its population. Its wages are falling, schools are very problematic. Crime, that used to be higher in Menlo Park, is now twice as high in Visalia. Pollution is much worse there.
It exemplifies what has been going on with many American communities. They were very alike in the ‘60s and the ‘70s and they’ve been growing apart and now they’re almost different continents.
The key predictor of a community’s economic success today, Moretti says, is the education level of its workers — in particular the number of college graduates in the workforce.
“It didn’t use to be like that,” he adds. “Sixty or seventy years ago, infrastructure and physical capital were the key predictors of a community’s success. Workers in Detroit were well paid because they had access to great infrastructure and great physical machines.”
But in the information age, Moretti says: “new ideas and successful innovation are rarely born in isolation” and clustering educated, innovative people has a multiplier effect.
That’s bad news for a place like Flint.
So what are we to do to secure American prosperity? One solution, Moretti believes, is that the United States must put more resources into education and support for research and development:
It’s clear that there are two engines that are supporting U.S.prosperity right now. It’s human capital – meaning people and education – and innovation. And it’s clear that we’re not investing enough in either one. We all know about the problems of not investing in education. The U.S.used to be a leader in high school graduation and college graduation and for the past 30 years it has been surpassed by a number of countries.
The second under-investment we’re doing is in innovation.America does have some of the greatest innovation hubs of the globe. But at the same time we are grossly under-investing in R & D and that is costing us right now in jobs and it’s going to cost us jobs even more in the future. In the same way that there’s a market failure in the creation of human capital, there’s a market failure in the creation of innovation.
When a company, for example when Apple invents a new product like the iPad, it generates private profit in the form of its sales but it also generates an external benefit for all the other companies in the same industry that can see the new product, can learn from it and will copy the new product. Apple doesn’t get compensated for that part of innovation. That’s why the federal government provides R & D tax credits for innovation because there is a private benefit from investing in innovation but there is also a public benefit. The problem is this tax credits are not large enough and they are not permanent.
We really need to put more resources in investing in human capital and more resources in subsidizing innovation, because they both are activities that generate vast benefits for us as a society. It’s not a fairness argument; this is just a purely pragmatic self-interest argument.
Another idea for revitalizing America’s Rust Belt (and beyond) in the post-industrial age, comes from journalist and historian Cathy Tumber, who’s new book, Small, Gritty and Green: The Promise of America’s Smaller Industrial Cities in a Low-Carbon World, argues that there’s hope for smaller American industrial cities to be revitalized through a green economy. Of course more investment in education and innovation may still be key.