The U.S. technology sector continues to grow rapidly, driving the nation’s innovation and overall economic growth. However, advanced technology companies are increasingly concentrated in only a few very high-cost metro hubs, such as Silicon Valley, Boston, and Seattle—creating a “winner-take-most” dynamic. The result is not only increasing regional inequality and lost opportunity in the heartland but reduced U.S. competitiveness.
It’s time for the federal government to take aggressive steps to counter the epidemic of regional division and avoid ceding its innovation lead to China. Congress should establish a major new initiative to select a set of promising metro areas to receive a major package of federal innovation inputs and supports that would help these areas accelerate, transform, and scale up their innovation sectors.
Primary takeaways from the report include:
- Regional divergence has reached extreme levels in the U.S. innovation sector. The innovation sector—comprised of 13 of the nation’s highest-tech, highest-R&D “advanced” industries—contributes inordinately to regional and U.S. prosperity. The five metro areas with the most innovation-sector jobs—Boston, San Francisco, San Jose, Seattle, and San Diego—accounted for more than 90% of the nation’s innovation-sector growth during 2005 to 2017.
- High levels of territorial polarization are now a grave national problem. Many Americans reside far from the opportunities associated with the nation’s innovation centers, undercutting economic inclusion and raising social justice issues. Moreover, the costs of excessive tech concentration have meant less overall innovation industry activity in the United States in part as companies increasingly move activity from high-cost U.S. tech hubs to medium-cost foreign hubs. Creating tech hubs in the heartland will provide an opportunity to reduce “innovation offshoring.”.
- Markets alone won’t solve the problem; federally led, place-based interventions will be essential in ameliorating it. Substantial evidence now suggests that the agglomeration of firms brings with it strong self-reinforcing tendencies that not only inhibit the spread of development, but are likely to exacerbate its concentration. Moreover, sub-national technology-based economic development efforts cannot significantly change these patterns by themselves, in part because the resources states and cities can bring to bear are limited.
- The nation should counter regional divergence by creating eight to 10 new regional “growth centers” across the heartland. Central to this package will be a direct R&D funding surge worth up to $700 million a year in each metro area for 10 years; other inputs, including an antitrust exemption for firms to collaborate on location decisions, are also critical. A rough estimate of the cost of such a program suggests that a growth centers surge focused on 10 metro areas would cost the federal government on the order of $100 billion over 10 years. That is substantially less than the 10-year cost of U.S. fossil fuel subsidies.
- Numerous metropolitan areas in most regions have the potential to become one of America’s next dynamic innovation centers. Some 35 potentially transformative metro areas surface as candidates for growth center designation. Candidates are situated in at least 19 states, lie in multiple regions (especially the Great Lakes, Upper South, and Intermountain West), and exist far removed from the coastal superstars.