“When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously. Good work is rightly appreciated, inventions and improvements in machinery, in processes and the general organization of the business have their merits promptly discussed: if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. And presently subsidiary trades grow up in the neighbourhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its material.”
Alfred Marshall
Principles of Economics, 1890
It is in this wonderfully lucid and now-archaic language that the British economist Alfred Marshall famously explained the principle of local labor markets. Now, 124 years later, the scholarly journals continue to elaborate on Marshall’s basic ideas. “Much progress has been made since this famous statement towards understanding exactly how agglomeration, knowledge spillovers and innovation fit together, and what their impact on local and national economies might be,” write Gerald Carlino of the Federal Reserve Bank of Philadelphia and William R. Kerr of the Harvard Business School in an August 2014 summary of the literature in a paper entitled “Agglomeration and Innovation” published by the National Bureau of Economic Research.
What lessons can the Hudson Valley economy and specifically the Ulster County economy learn from this continuing research? What clues might it provide us as to how we might strengthen an economy that five years after the Great Recession in many aspects still has not returned to pre-recession levels?
Population and economic activity are spatially concentrated, which is to say in complicated language that economic activity tends to cluster in particular places. But that’s just the beginning of wisdom, write Carlino and Kerr. “Why is innovative activity clustered?” ask the two. “What is the best way to measure this concentration? What is the economic impact of this concentration? How are forces that relate to invention versus innovation measured? What are the patterns of innovation and agglomeration?”
Silicon Valley dreams
Every region wants to be the next Silicon Valley. Rapidly growing Midtown South in Manhattan, where tens of thousands of software engineers and app developers are now concentrated, is the closest pretender to the Hudson Valley in that lofty ambition. They call it Silicon Alley.
Explains the Wikipedia entry, this clump of neighborhoods “has evolved into a metonym for the sphere encompassing the New York City metropolitan region‘s high-tech industries involving the Internet, new media, telecommunications, digital media, software development, biotechnology, game design, financial technology (“fintech”), and other fields within information technology that are supported by its entrepreneurship ecosystem and venture-capital investments.” Recent New York City studies by the Center for an Urban Future and others have focused on the same trend. The so-called high-tech sector continues to grow rapidly south of the Hudson Valley.
How does the Hudson Valley get a bigger piece of that action? There are many roads but apparently few vehicles capable of traveling them.
The state Department of Labor estimates that the seven-county Hudson Valley region will average around 460 new openings annually for computer analysts, programmers, app developers, network managers, web developers and the like through the year 2020. Training fewer than 3000 potential holders in six years in these jobs seems to me the epitome of backward thinking. In a workforce of almost a million persons, is that the best we can do to utilize a cadre of young people with modern-day skills? The Hudson Valley is expecting to have that many openings for office clerks, as many for secretaries, and three times as many for retail salespersons. You can’t pretend to live for the future if you train most of your young people to live in the past.
The state’s regional economic development strategy has identified investment in technology as one of the Hudson Valley’s “core strategies.” The 2014 regional report advises: “Strengthen the region’s capacity for future growth with targeted job-creation investments in the region’s key industry clusters: biotech, biomedical and healthcare; advanced manufacturing and information technology.” And it recognizes the need to enhance the region’s workforce development system through the colleges, schools and other institutions. Execution so far, however, has been spotty. There’s been lip service in many parts of the system and tangible commitments only in a few.
Traits of clusters
As Carlino and Kerr find in their exhaustive survey of the literature on patterns of regional innovation, most of the empirical studies only “consider single-dimensional outcomes like patents.” They hope that future research “develops a richer accounting of the variations of innovation and how they related to the traits of clusters.”
The authors even hazard their version of an economist’s joke — hold on to your hats, now — when they summarize: “Innovation comes in many shapes and sizes, except in economic studies.”
Just because a social phenomenon is complicated, however, shouldn’t mean it ought not to be examined. Evidence within a single “neighborhood” is spread over many disciplines and perspectives. In academic language, that’s expressed: “This porous boundary reflects the complex nature of innovation and requires researchers to span a larger domain in their work.”
What can policy makers do to foster agglomeration and innovation in their jurisdictions? The authors offer a heartfelt and measured conclusion. “This is a big and difficult question,” they write, “and we are right to be cautious that we do not have all of the answers. However, governments have spent billions of dollars on this, and many will continue to fund be-the-next-Silicon-Valley-type initiatives. This is true in advanced economies, in nations looking to transition from resource-based dependence to a knowledge-based economy, in developing countries looking to leapfrog growth stages, and everywhere in between. Economists must continue to work to provide insights on those critical matters, and ideally our insights can get sharper faster.”
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