A Plan for Closing the Gap Between ‘Superstar’ Cities and Other Metro Regions

A handful of U.S. cities with robust tech sectors has been pulling away economically from the rest of the nation in recent years.  

In a new report, researchers say that between 2005 and 2017 just five metro areas—Boston, San Francisco, San Jose, Seattle and San Diego—accounted for over 90% of the growth in the nation’s “innovation sector”—a term they use to describe a group of industries that heavily involve various kinds of technology, science, math and research.

To combat this trend, it’s time for the federal government to step in to help other promising metro areas catch up, argue the researchers from the Brookings Institution and Information Technology and Innovation Foundation. 

“Whole portions of the nation may be falling into traps of underdevelopment, where they actually can’t catch up,” Mark Muro, a senior fellow at Brookings and one of the report’s authors, said at an event last week. He described “a crisis” of “regional imbalance” unfolding in the U.S. 

Muro and his co-authors propose a new federally-backed initiative designed to provide a boost for about 10 metro areas so that they might become more powerful centers of gravity within the nation’s economy. Rather than targeting the country’s most struggling communities, the program described is more about turbo-charging places that are already show signs of strength.

The report lists some metro regions that could be a good fit. Many already have somewhat thriving economies, along with assets like research universities, airports and ample pools of professional talent. Examples are places like Nashville, Pittsburgh and Minneapolis.

While some economists might argue that the heavy concentration of America’s innovation economy in a few big urban areas makes sense, offering efficiencies that might not otherwise be attainable, the report makes a case that it is increasingly unsustainable.

Cities that have seen lesser gains in innovation-related industries are more apt to be dealing with economic stagnation and to offer fewer job opportunities for residents, the report says.

Meanwhile, better educated workers, who can afford to relocate, often opt to move to more booming regions that offer a wider array of job options. As a result of this “sorting” within the workforce, the talent pool becomes thinner in the places that these workers leave behind. 

And the “superstar” metro regions are experiencing problems of their own—like high housing costs, heavy traffic, strained transit systems and growing income inequality.

Muro, along with co-authors Robert Atkinson, founder of the Information Technology and Innovation Foundation, and Brookings research analyst Jacob Whiton, explain in the report that the trends with “divergence” between regional economies that they identify are a relatively new phenomenon in the U.S. 

Up until around the 1980s, they say, better- and worse-off regions were generally seeing a “convergence” instead—poorer places catching up to richer ones, and different metro regions around the country advancing on a roughly similar economic trajectory. 

But the onset of the digital economy triggered a shift in this dynamic, they say, resulting in the current situation where about 20, mostly-coastal metros have broken away. 

The repercussions are not necessarily confined to the economy. 

Muro, Atkinson and Whiton suggest that the growing economic chasm between superstar cities and the rest of America is also fueling the rise in political polarization.

States and local governments have launched all sorts of localized efforts in recent years aimed at drawing in startups and other companies and attracting younger, educated workers. 

But the report authors argue that the economic gap between the superstar cities and their peers with more modest growth is now so severe that sweeping, federal intervention is required.

They offer up a proposal for how the federal government could use both funding and regulatory changes to help close the divide, as well as stimulate tech-related economic activity more broadly.

These efforts would target eight to 10 metros, with 500,000 people or more, located at least 100 miles from the nation’s current top, tech boomtowns. The cities would be selected through a competitive, “request for proposals”-style process. The program would run for 10 years.

The researchers outline the program they envision to aid these places in detail in their report. 

For example, one key element would involve ramping up federal research grants for universities in cities that are selected. 

Another is a “collaborative” research and development tax credit that would be available to firms that invest in universities, hospitals and other research facilities in those places.

Among their other proposals, is the idea of raising the cap on H-1B visas for high-skilled workers by 10,000 and setting those extra visas aside for jobs in the selected metro areas.

They also call for relaxing certain antitrust laws so companies could cooperate on decisions about where to locate. Muro, Atkinson and Whiton point out that companies can be reluctant to move to “almost there” regions because they don’t want to risk being isolated from other firms.

As it stands, they caution that much of the “natural convergence” taking place with American tech hubs is with foreign cities. Venture capitalists told the researchers that they often encourage new companies to expand abroad after getting started in a place like the Bay Area.

The report notes that the cost of doing business in foreign cities like Shanghai in China, or Taipei in Taiwan, is lower compared to a place like Boston or Seattle. But it also points out that American cities like Kansas City or Detroit offer comparably lower costs.

Companies go to the cities abroad, the report says, because they are cheaper than Boston and San Francisco, but also tech hubs in their own right.

Detroit and Kansas City are on the list of about 30 metro areas that Muro, Atkinson and Whiton highlight as having high potential as U.S. growth centers. Other cities on the list include places like Madison, Wisconsin; Columbus, Ohio; Albany, New York; and Tucson, Arizona.

The overall estimated cost of the program they propose is about $100 billion over 10 years, the report says. They say that’s less than federal fossil fuel subsidies over the same time frame.

Whether Congress could ever muster the will to act on such a program is questionable, especially in an era when partisan disagreements can complicate even routine legislation.

But two senators on-hand at last week’s event, Chris Coons, a Delaware Democrat, and Jerry Moran, a Kansas Republican, both appeared to be receptive to the ideas that report raises.

Coons called the stratification in nation’s high tech economy a “market failure.” 

“I do also believe that when companies focus on just a few, highly concentrated tech hubs they’re missing out,” he added. "Our hope is to distribute some of this opportunity.”