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>Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connect

>Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connection, it could be anywhere in the world. Let's concentrate on the US for a moment. Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines? Because the real commodity being sold with the apartments and offices isn't net access or even land. It's proximity to rich people. It's not an open market economy; it's a feudal system in which you need to stick close to your patrons.

startupdiscuss 10y ago
That's a very interesting and original way of looking at it. It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc). Do you have any links or references exploring that idea in greater detail?
- CPLX 10y ago
  I don't mean to have this come across as snarky, at all, but really the reference for this is the whole of human history. Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. The original article does present some interesting and relevant examples of countervailing forces at work as well, and is insightful. But the elephant in the room, as always, is that returns to capital and rent extraction are the primary drivers of wealth, and that the winners tend to keep winning and vice versa.
  - startupdiscuss 10y ago
    That's not snarky, and you have a point. But even if things seem "really obvious" and we can tell "just by looking at the facts", I feel better if someone has looked at the data and shown that to be the case. We aren't living in the feudal era, and a lot of people like to think that the reason people move to the cities is because of (for instance) bars and restaurants, museums and the opera, high-paying jobs and so on. This proximity to wealth may be a symptom of some third factor or it may be the driving factor. That's why I appreciate it when smart, hard-working people take their time to figure it out for me.
    - antisthenes 10y ago
      The problem is, as often in economics, defining the terms and building a model that approximates life. It's not as trivial as a sorting algorithm or a simple 1 parameter regression. How do you define wealth concentration, for example? If your definition is flawed, you can throw out the entire model.
      - Paul-ish 10y ago
        I suppose that is why people spend their entire academic career looking at these things.
    - glibgil 10y ago
      > bars and restaurants, museums and the opera, high-paying jobs And these would actually be rent seeking activities? Is that the idea?
      - startupdiscuss 10y ago
        That wasn't what I was thinking of. I was just contrasting two different types of reasons for why people cluster in those cities. Type I, the optimistic theory Information is more efficient and trust is better when people meet in person. Industries need to co-ordinate trust and information flow through lots of people, so they have to be in the same place. They produce a lot of value, which produces wealth and increases productivity. That wealth pays for all these great things. This causes a happy cycle of smart and educated people being attracted to the "good" things in life coming to the cities, and providing labor for the companies and so on. Type II, the pessimistic theory In order to get industries going (tech startups, new Oil and gas company etc) you need capital, and the capital exists in these enormous clusters. So the people who want to fund the industry has to go to these clusters of existing capital and convince them to invest them. The returns from the success of the industry go back to the same place and so on. The existence of the bars, restaurants and museums are compatible with both, but only have causal power in the first type of theory.
        10y ago
  - olalonde 10y ago
    > Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. Plundering, seriously? Isn't HN supposed to be a community of entrepreneurs?
    - sqeaky 10y ago
      We might not be the plunderers, we might just be their tools.
    - CPLX 10y ago
      Yes, seriously. Next time you're in London take a detour to the British Museum if you remain confused on the subject.
    - moomin 10y ago
      Just because we believe there are people who accrue wealth by adding value doesn't mean there aren't people who do the opposite. If you recall Atlas Shrugged, James Taggart makes an awful lot of money and can't understand why Dagny still doesn't approve. To further complicate matters, both behaviours can be exhibited by the same person.
  - Retric 10y ago
    A huge missing part of this discussion is Tech is not that concentrated in 'The Bay Area' people are. More people live in 'The Bay Area' than Maine, Montana, Delaware, North Dakota, South Dakota, Alaska, Vermont, and Wyoming combined. The Bay Area plus NYC metro area are 8.5% of the total US population so yes they are a significantly larger chunk of GDP and wealth. But, they are large enough that the differences are smaller than you might think.
- protomyth 10y ago
  It also provides a place with interesting signals. You could tell shale oil was going to take off when Minot ND suddenly had direct, daily flights from Houston.
- ikeyany 10y ago
  Are you serious? That's Students choose to attend "good schools" because of the networks and resources. Immigrants flock to the US because of our resources. Increasing your chances of prosperity is the reason why anyone moves anywhere (unless a family member is in need).
- sgron 10y ago
  The reference that I posted elsewhere in this thread is pretty thorough: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf
- yblu 10y ago
  I first read about this connection in Paul Graham's essay "How to be Silicon Valley" [1] [1]: http://www.paulgraham.com/siliconvalley.html http://www.paulgraham.com/siliconvalley.html
- jlewis7272 10y ago
  A good resource that is still in use today by many urban planners is a book called "The Death and Life of Great American Cities" by Jane Jacobs. She explores among other things the growth, decline and renewal of urban centers. Even though this was written in the 60's most of her ideas are still considered when city urban planners make decisions.
- ghaff 10y ago
  In industrial industries like Oil & Gas, there are also a lot of advantages to having clusters of suppliers and service industries together. When I worked in the drilling business (not in Houston but in another city fairly nearby), pretty much all the overhaul, fabrication, part suppliers, etc. were all in the general area and we could visit them to review plans, oversee tests, etc.
- Spooky23 10y ago
  Remember that you have consolidation happening too! Places like Albany, NY were regional banking centers as recently as 30 years ago. In Albany's case, that was an artifact of the city's role as a transportation hub for canals and railroads. As the role of banking has changed and the market has consolidated from a highly distributed model, its harder and harder to do business outside of large areas. If you're a midsize business, it's hard to get lines of credit simply because nobody wants to travel to talk to you. Even within large organizations like government and Fortune 50 companies, consolidation drives centralization. Big places used to have regional administrative services (HR, Finance, etc). You could make a career working in some regional field office. Now, centralized functions mean that you work at HQ, a regional center, or you're a task worker in the provinces.
falsedan 10y ago
That's it, although I'd say it's access to capital & advice from wealthy people. You can code and create a product anywhere; you can meet VCs by flying into SFO (VCs might fly to you if you are extremely successful already).
- randomdata 10y ago
  I'd say that capital flows freely and advice can be given anywhere. What's hard to cultivate and maintain at a distance is friendship.
  - falsedan 10y ago
    I think that capital aggregates in trade centres, where materials can be exchanged and deals can be made extremely swiftly. People closer to the trade can get information more quickly, and quickly react to it too. Individual capital is very liquid, but the herd is not. Consider San Francisco: it has capital because of tech, because of the need for electronics & power for running a port, because of the trade in the Bay, because of the gold miners in 1849. That capital hasn't moved significantly to (say) Bakersfield.
lordCarbonFiber 10y ago
While there's certainly some true to that statement, I think you're being overly cynical. People congregate in cities to be near _people_. For sure with a good internet connection I could do all my work from small town america living in a mcmansion at a quarter of my rent; instead I live in nyc. Access to artistic communities, robust public transit, diverse food and culture, and a fluid job market makes the value add for me a no brainer. Im sure for different people the economics don't work out so cleanly, but online I feel like discussions on rent and technology tend to gloss over the things you're actually paying for. A successful startup isn't going to be in the cities you mentioned because you have to convince people that they find the non-work related amenities they've gone to SF, Seattle, NYC, etc to find. Or go full remote, which has its own set of challenges (though I'd posit a full remote company really isn't in any one city so it doesn't really matter where the founders live).
- mehaveaccount 10y ago
  I have to disagree strongly. I live in NYC for work. I actually hate living here and I don't like the people I'm around. I am desperately looking for a way out of this city but my family lives on Long Island, so it's hard to justify going to another city.
  - wan23 10y ago
    Why don't you move to Long Island and commute? If you don't like the city there are plenty of smaller towns nearby and it's cheaper too.
    - humanrebar 10y ago
      NYC doesn't have a monopoly on bad commutes, but isolating yourself even more with an even longer commute doesn't solve culture mismatch issues. Besides, it's not a great lifestyle anyway.
    - mehaveaccount 10y ago
      If I live near my family on Long Island it would be a 2.5 hour commute to my job each way. If I live halfway between them and my job then I'm neither close to them nor my job. So living near my job is the least bad option, and that seems to be the option most people take.
eumoria 10y ago
In my field we service the financial industry and this couldn't be more true. It's a requirement to be in physical proximity to midtown and Wall Street. However phrasing it like you do doesn't make me feel all that good :(
- sosuke 10y ago
  Don't feel bad, you have a real reason to be close by because light speed is only so fast. I remember reading recently somewhere that some firm had microwave relay systems in place so they could get data faster. High frequency trading only works with the best data!
s0rce 10y ago
CEOs are wealthy enough to live in the places and apparently desire to. This creates jobs in those cities and people will pay to live in them. Some people end up working remotely and live in cheaper places but not everyone has this option.
- acchow 10y ago
  I'm pretty sure you have this backwards. The company doesn't locate itself where the CEO wants to be. The company is just located somewhere.... and the CEO will usually move to wherever that is upon hiring, unless they already live there.
olivermarks 10y ago
you could argue it is a form of apartheid: manhattan and the san francisco peninsula are classic constrained square miles with limited access points. The walled City of London, a separate sovereign maritime nation situated within London is another historic example... https://www.ft.com/content/7c8f24fa-3aa5-11e4-bd08-00144feabdc0 https://www.ft.com/content/7c8f24fa-3aa5-11e4-bd08-00144feab...
adventured 10y ago
> It's proximity to rich people. You have to be a lot more specific. There is an immense number of rich people in Los Angeles and it has historically had a mediocre tech scene for example (especially compared to SF, but it also lags Seattle and NY currently). It's proximity to large numbers of very specific rich people.

startupdiscuss 10y ago

That's a very interesting and original way of looking at it. It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc). Do you have any links or references exploring that idea in greater detail?

CPLX 10y ago
I don't mean to have this come across as snarky, at all, but really the reference for this is the whole of human history. Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. The original article does present some interesting and relevant examples of countervailing forces at work as well, and is insightful. But the elephant in the room, as always, is that returns to capital and rent extraction are the primary drivers of wealth, and that the winners tend to keep winning and vice versa.
- startupdiscuss 10y ago
  That's not snarky, and you have a point. But even if things seem "really obvious" and we can tell "just by looking at the facts", I feel better if someone has looked at the data and shown that to be the case. We aren't living in the feudal era, and a lot of people like to think that the reason people move to the cities is because of (for instance) bars and restaurants, museums and the opera, high-paying jobs and so on. This proximity to wealth may be a symptom of some third factor or it may be the driving factor. That's why I appreciate it when smart, hard-working people take their time to figure it out for me.
  - antisthenes 10y ago
    The problem is, as often in economics, defining the terms and building a model that approximates life. It's not as trivial as a sorting algorithm or a simple 1 parameter regression. How do you define wealth concentration, for example? If your definition is flawed, you can throw out the entire model.
    - Paul-ish 10y ago
      I suppose that is why people spend their entire academic career looking at these things.
  - glibgil 10y ago
    > bars and restaurants, museums and the opera, high-paying jobs And these would actually be rent seeking activities? Is that the idea?
    - startupdiscuss 10y ago
      That wasn't what I was thinking of. I was just contrasting two different types of reasons for why people cluster in those cities. Type I, the optimistic theory Information is more efficient and trust is better when people meet in person. Industries need to co-ordinate trust and information flow through lots of people, so they have to be in the same place. They produce a lot of value, which produces wealth and increases productivity. That wealth pays for all these great things. This causes a happy cycle of smart and educated people being attracted to the "good" things in life coming to the cities, and providing labor for the companies and so on. Type II, the pessimistic theory In order to get industries going (tech startups, new Oil and gas company etc) you need capital, and the capital exists in these enormous clusters. So the people who want to fund the industry has to go to these clusters of existing capital and convince them to invest them. The returns from the success of the industry go back to the same place and so on. The existence of the bars, restaurants and museums are compatible with both, but only have causal power in the first type of theory.
      - 10y ago
- olalonde 10y ago
  > Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up. Plundering, seriously? Isn't HN supposed to be a community of entrepreneurs?
  - sqeaky 10y ago
    We might not be the plunderers, we might just be their tools.
  - CPLX 10y ago
    Yes, seriously. Next time you're in London take a detour to the British Museum if you remain confused on the subject.
  - moomin 10y ago
    Just because we believe there are people who accrue wealth by adding value doesn't mean there aren't people who do the opposite. If you recall Atlas Shrugged, James Taggart makes an awful lot of money and can't understand why Dagny still doesn't approve. To further complicate matters, both behaviours can be exhibited by the same person.
- Retric 10y ago
  A huge missing part of this discussion is Tech is not that concentrated in 'The Bay Area' people are. More people live in 'The Bay Area' than Maine, Montana, Delaware, North Dakota, South Dakota, Alaska, Vermont, and Wyoming combined. The Bay Area plus NYC metro area are 8.5% of the total US population so yes they are a significantly larger chunk of GDP and wealth. But, they are large enough that the differences are smaller than you might think.
protomyth 10y ago
It also provides a place with interesting signals. You could tell shale oil was going to take off when Minot ND suddenly had direct, daily flights from Houston.
ikeyany 10y ago
Are you serious? That's Students choose to attend "good schools" because of the networks and resources. Immigrants flock to the US because of our resources. Increasing your chances of prosperity is the reason why anyone moves anywhere (unless a family member is in need).
sgron 10y ago
The reference that I posted elsewhere in this thread is pretty thorough: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf
yblu 10y ago
I first read about this connection in Paul Graham's essay "How to be Silicon Valley" [1] [1]: http://www.paulgraham.com/siliconvalley.html http://www.paulgraham.com/siliconvalley.html
jlewis7272 10y ago
A good resource that is still in use today by many urban planners is a book called "The Death and Life of Great American Cities" by Jane Jacobs. She explores among other things the growth, decline and renewal of urban centers. Even though this was written in the 60's most of her ideas are still considered when city urban planners make decisions.
ghaff 10y ago
In industrial industries like Oil & Gas, there are also a lot of advantages to having clusters of suppliers and service industries together. When I worked in the drilling business (not in Houston but in another city fairly nearby), pretty much all the overhaul, fabrication, part suppliers, etc. were all in the general area and we could visit them to review plans, oversee tests, etc.
Spooky23 10y ago
Remember that you have consolidation happening too! Places like Albany, NY were regional banking centers as recently as 30 years ago. In Albany's case, that was an artifact of the city's role as a transportation hub for canals and railroads. As the role of banking has changed and the market has consolidated from a highly distributed model, its harder and harder to do business outside of large areas. If you're a midsize business, it's hard to get lines of credit simply because nobody wants to travel to talk to you. Even within large organizations like government and Fortune 50 companies, consolidation drives centralization. Big places used to have regional administrative services (HR, Finance, etc). You could make a career working in some regional field office. Now, centralized functions mean that you work at HQ, a regional center, or you're a task worker in the provinces.

falsedan 10y ago

That's it, although I'd say it's access to capital & advice from wealthy people. You can code and create a product anywhere; you can meet VCs by flying into SFO (VCs might fly to you if you are extremely successful already).

randomdata 10y ago
I'd say that capital flows freely and advice can be given anywhere. What's hard to cultivate and maintain at a distance is friendship.
- falsedan 10y ago
  I think that capital aggregates in trade centres, where materials can be exchanged and deals can be made extremely swiftly. People closer to the trade can get information more quickly, and quickly react to it too. Individual capital is very liquid, but the herd is not. Consider San Francisco: it has capital because of tech, because of the need for electronics & power for running a port, because of the trade in the Bay, because of the gold miners in 1849. That capital hasn't moved significantly to (say) Bakersfield.

lordCarbonFiber 10y ago

While there's certainly some true to that statement, I think you're being overly cynical. People congregate in cities to be near _people_. For sure with a good internet connection I could do all my work from small town america living in a mcmansion at a quarter of my rent; instead I live in nyc. Access to artistic communities, robust public transit, diverse food and culture, and a fluid job market makes the value add for me a no brainer. Im sure for different people the economics don't work out so cleanly, but online I feel like discussions on rent and technology tend to gloss over the things you're actually paying for. A successful startup isn't going to be in the cities you mentioned because you have to convince people that they find the non-work related amenities they've gone to SF, Seattle, NYC, etc to find. Or go full remote, which has its own set of challenges (though I'd posit a full remote company really isn't in any one city so it doesn't really matter where the founders live).

mehaveaccount 10y ago
I have to disagree strongly. I live in NYC for work. I actually hate living here and I don't like the people I'm around. I am desperately looking for a way out of this city but my family lives on Long Island, so it's hard to justify going to another city.
- wan23 10y ago
  Why don't you move to Long Island and commute? If you don't like the city there are plenty of smaller towns nearby and it's cheaper too.
  - humanrebar 10y ago
    NYC doesn't have a monopoly on bad commutes, but isolating yourself even more with an even longer commute doesn't solve culture mismatch issues. Besides, it's not a great lifestyle anyway.
  - mehaveaccount 10y ago
    If I live near my family on Long Island it would be a 2.5 hour commute to my job each way. If I live halfway between them and my job then I'm neither close to them nor my job. So living near my job is the least bad option, and that seems to be the option most people take.

eumoria 10y ago

In my field we service the financial industry and this couldn't be more true. It's a requirement to be in physical proximity to midtown and Wall Street. However phrasing it like you do doesn't make me feel all that good :(

sosuke 10y ago
Don't feel bad, you have a real reason to be close by because light speed is only so fast. I remember reading recently somewhere that some firm had microwave relay systems in place so they could get data faster. High frequency trading only works with the best data!

s0rce 10y ago

CEOs are wealthy enough to live in the places and apparently desire to. This creates jobs in those cities and people will pay to live in them. Some people end up working remotely and live in cheaper places but not everyone has this option.

acchow 10y ago
I'm pretty sure you have this backwards. The company doesn't locate itself where the CEO wants to be. The company is just located somewhere.... and the CEO will usually move to wherever that is upon hiring, unless they already live there.

olivermarks 10y ago

you could argue it is a form of apartheid: manhattan and the san francisco peninsula are classic constrained square miles with limited access points. The walled City of London, a separate sovereign maritime nation situated within London is another historic example... https://www.ft.com/content/7c8f24fa-3aa5-11e4-bd08-00144feabdc0 https://www.ft.com/content/7c8f24fa-3aa5-11e4-bd08-00144feab...

adventured 10y ago

> It's proximity to rich people. You have to be a lot more specific. There is an immense number of rich people in Los Angeles and it has historically had a mediocre tech scene for example (especially compared to SF, but it also lags Seattle and NY currently). It's proximity to large numbers of very specific rich people.