The past forty years have seen a remarkable range of urban successes and failures, especially among America’s older cities. Some places, like Cleveland and Detroit, seem caught in perpetual decline. Other areas, like San Francisco and New York, had remarkable success as they became centers of idea-based industries.Rather ironic isn't it? Improved communication technologies leads some people to locate CLOSER to each other. They do - if I understand the argument - precisely because they are better rewarded for their ideas since improved communication technologies increases the size of the audience for those ideas. Yet those same ideas are easier to generate when physical proximity is close.
In this paper, we suggested that these urban successes and urban failures might reflect the same underlying technological change: a vast improvement in communication technology. As communication technology improved, it enabled manufacturing firms to leave cities, causing the urban distress of Detroit or Manhattan in 1975. However, declining communication costs also increased the returns to new innovations, and since cities specialize in idea-production, this helped invigorate some cities.
The model suggests that future improvements in information technology will continue to strengthen cities that are centers of innovation, but continue to hurt cities that remain oriented towards manufacturing. Certainly, there is every reason to think that the free flow of people and capital across space will only continue to increase the returns to new ideas.
The important question for the future of cities is whether urban areas will continue to have a comparative advantage in producing ideas. The great challenge to urban areas therefore comes from the possibility that innovation will also leave dense agglomerations. While this is possible, there is a remarkable continuing tendency of innovative people to locate near other innovative people. Silicon Valley, for example, is built at lower densities than New York, because it is built for drivers not pedestrians, but it is certainly a dense agglomeration. As long as improvements in information technology continue to increase the returns to having new ideas, then the edge that proximity gives to innovation seems likely to keep such agglomerations strong.
I don't believe this bodes well for our region. As a professor of mine used to say: La Crosse is centrally isolated. It will be hard for knowledge workers in our region to avoid the pull of the magnets of Chicago and the Twin Cities.