Rappaport Institute horizontal images

Even Internet-Age Companies Need City Buzz

Originally published by Bloomberg News

June 22, 2011
Edward Glaeser (Glimp Professor of Economics, Harvard University)

Over the past month, we have heard reports that UBS AG (UBSN) may move the staff of its U.S. investment bank from Stamford, Connecticut, to Manhattan by 2015. The Boston Globe recently reported that Biogen Idec Inc. (BIIB) is bringing its headquarters and more than 500 jobs back to Cambridge, Massachusetts, from Weston, where it moved less than a year ago. And Seattle-based Amazon.com Inc. will build a publishing team in New York, with the help of a former publisher and literary agent, Laurence Kirshbaum.

The common theme of these stories is that cities and spatial proximity still matter in the Internet Age. Amazon.com specializes in long-distance salesmanship, but when it comes to producing intellectual content, it wants a physical footprint in New York City, right at the center of America’s publishing cluster.

Biogen is a global biotechnology firm, founded in Geneva in 1978, but its chief executive officer, George Scangos, needs a temporary office in Cambridge. Apparently, the 30-minute drive from the company’s Weston headquarters to its Cambridge-based research and development facilities is just too long.

The New York Times reported that UBS’s possible move would serve "mostly to be closer to clients," and that "a suburban location has become a liability in recruiting the best and brightest young bankers, who want to live in Manhattan or Brooklyn."

Proximity to MIT

None of these stories is anywhere near finished. Biogen still has a long lease on its Weston headquarters, and it hasn’t yet found enough affordable space in the research-rich neighborhood near the Massachusetts Institute of Technology. Amazon’s New York publishing venture may fail or move elsewhere. Stamford and Connecticut will fight hard for UBS, and there is speculation that the bank floated the proposed move only as a way to get a better tax deal.

Yet the three stories together tell a collective tale that contradicts the view that ever-better electronic connections will mean the end of face-to-face contact, along with the cities that make that contact easier. At the dawn of the Internet Age, cyber-seers, such as Alvin Toffler and William Knoke, saw a future in which we would inhabit "electronic cottages" in a "spaceless world." But while new technologies are even more miraculous than promised, space continues to matter. Companies are still willing to put up with the price of a Manhattan location in order to gain the benefits of being near brilliance.
Information Transmission

Fifteen years ago, I raised the possibility that "telecommunications are not a substitute for face-to-face interactions, but in fact these two forms of information transmission are complements," which would mean that better electronic connections make in-person connections more, not less, important.

The techno-prophets were surely correct in predicting that some personal interactions would become obsolete; Amazon.com undoubtedly has reduced the number of times that book buyers come in direct contact with salespeople.

But I suspected then that better electronic communications would also cause people "to start more relationships and make more contacts," and while these connections may start with phones and Facebook, they eventually lead to face-to-face meetings. If electronic media increase the value of in-person meetings by creating a more interactive economy, then better technology would lead to a world where space matters more, not less.

Global Outreach


In my book "Triumph of the City," I advanced a more important reason why electronic innovations have made personal contact more valuable. New technologies and globalization have steadily increased the returns to knowledge and new ideas. Amazon.com can make more money from better books because its electronic retailing enables it to sell on the other side of the planet. The returns to brainpower in finance have only increased as that industry has globalized and become more technologically intense. A vast literature has documented the improved financial returns to measures of skills, such as years of education.

Yet the value of new ideas makes cities more important because we are a social species. We get smart by being around other smart people. Anyone who has ever taught can confirm that knowing your script is the easy part -- the hard part is getting your ideas across, and being there really matters.

Face-to-Face Cues

During millions of years of evolution, humans have acquired rich cues for communicating comprehension or confusion. These become more important when ideas get complicated, and they are too often lost in cyberspace. Certainly, the ever-increasing number of applications to traditional universities, such as Harvard, shows the robust demand for face-to-face learning from faculty and peers.

But the most important reason that young people want to be at the center of the action is that they are exposed to a wealth of unplanned experiences that couldn’t possibly be picked up over the ether. No industry has better access to communications technology than software, yet Silicon Valley is the most famous example of a spatial cluster in the world today.

The Googleplex may be the most physically connected innovation hub on the planet. Young software engineers know that they will pick up invaluable insights by being there, by seeing what does and doesn’t work, by making connections that count. UBS’s young investment bankers who value New York similarly value the human capital that comes from local learning.

Borrowing Old Ideas

Facebook is a flat-world phenomenon that enables effortless long-distance social connection, but it was invented in the idea-rich corridors of Cambridge. It is normal for new ideas to borrow from old ones, and density enables chains of connected creativity. We shouldn’t be surprised that Biogen wants to be near MIT.

Cities continue to face enormous challenges, from the fiscal woes in the U.S. to the unclean water in the megalopolises of the developing world. But the urban future is far brighter than it was 30 years ago, when it seemed globalization would hit knowledge-workers, such as those on Wall Street, just as hard as it hit city-based manufacturers, such as New York’s garment industry, once America’s largest industrial cluster.

Today, Manhattan doesn’t make many garments, but it does produce plenty of fashion designs, and that’s likely to continue as new technologies magnify the importance of humankind’s greatest asset: our ability to learn from people around us.

Print print | Email email
South Boston