How the Internet may be shifting innovation away from big cities

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How the Internet may be shifting innovation away from big cities

Think of the device you’re reading this on. It’s the culmination of hundreds, maybe thousands, of inventions that all got added together to form a computer, tablet or smartphone. Most of this technology came out of Silicon Valley, one of the world’s greatest hubs for innovation. But what is it about that place that makes it such a fruitful breeding ground for ideas?

Intuitively, you might imagine that having lots of inventors clustered together would be great for collaboration. One engineer or company can quickly take someone else’s idea and build upon it. Now there’s research to back that up. A recent study of the entire U.S. patent system – covering millions of patents dating back to 1836 — finds that geographic clustering does, in fact, accelerate the pace of innovation.

“Our empirical findings indicate that during the 20th century, inventions in large U.S. cities built on recent advances much more often than comparable inventions in smaller U.S. cities,” according to the University of Waterloo’s Mikko Packalen and Stanford University’s Jay Bhattacharya, in a paper published by the National Bureau of Economic Research.
Looking at keywords that represent important technological leaps, such as “database,” “microprocessor” or “transistor,” the researchers examined how quickly those terms made it into other patents soon after the terms first appeared in the U.S. patent system. They found that in places with higher population density, inventors were quicker to pick up on new ideas and incorporate them into their own work.

This might sound like an obvious conclusion. But, Packalen and Bhattacharya point out, there’s nothing special about geographic clustering that makes innovation inevitable. A big city that’s home to a dominant industry could plausibly suppress innovation if the industry in question decides a new invention poses a threat, for instance.

So the fact that America’s inventors do their best work when they’re around other inventors seems like something worth appreciating, and perhaps promoting through public policy. There’s just one complication: For whatever reason, the researchers note that the benefits of geographic clustering appeared to drop off beginning in the 1960s and 1970s.

What’s so interesting about that pattern is that it fits the rise of advanced communications technologies, along with a precipitous fall in the cost of talking to someone over long distances. One of the first examples that comes to mind is the Internet, which the researchers say has “made new ideas available more cheaply to all, regardless of where they were developed.” But you also can’t forget the rise of satellite communications, fiber optics, the fax machine, the cellphone and all manner of other technologies that shrunk distances and made it easier for inventors in small towns to benefit from advantages enjoyed by inventors in large cities.
While the researchers don’t provide conclusive evidence for that conclusion, they point to predictions from as far back as 1920 that communications technology would someday lead to a dramatic decrease in the cost of innovation. The economist Alfred Marshall “himself explored the implications of such ‘cheapening of the means of communication,’ and raised the possibility that location might play only a minor role in knowledge production,” Packalen and Bhattacharya write.

Whether this is actually what we’re seeing isn’t fully clear. But it does raise questions about whether it’s better to cluster innovators together – or whether the Internet has effectively erased the tremendous historical advantages of physical proximity.

Washington Post