The National Basketball Association finals tip off tonight, pitting the nation’s No. 1 and No. 3 technology capitals and its No. 1 and No. 3 destinations for venture capital.
That’s not how the sports world thinks of this matchup. ESPN will tell you that this is the Golden State Warriors against the Boston Celtics. But the economic world sees this as a battle between two of the nation’s top three tech cities.
Whenever there’s a sports championship, I like to play a little parlor game by looking at the economies of the two cities represented to see what lessons we can learn from them. For those of you are into this sort of thing, here are the ones so far:
Los Angeles: How advanced manufacturing drives the economy.
Cincinnati: How the city turned a liability into an asset.
Once the conference champions are in place, I’ll look at the two cities that make the National Hockey League’s Stanley Cup finals (and I must admit, I’m rooting for the Edmonton Oilers, because that Canadian city will be a special challenge – but also has a fascinating economic story to tell). Today, though, it’s San Francisco and Boston – and because their stories are so similar, I’ll tell them in the same column. Both of these cities are tech giants, with San Francisco No. 1 and Boston No. 3.
Some rankings count the San Francisco Bay area and San Jose separately; some combine. It doesn’t really matter. This NBA championship series is still between No. 1 and No. 3.
The website AI Multiples (which combines San Francisco and San Jose) says there are 2,200 tech companies in San Francisco, 1,900 in New York and 536 in Boston. Bloomberg says that in 2021 San Francisco attracted 28.2% of the nation’s venture capital, New York 15.9% and Boston 10.6%. It counts San Jose separately – at 8% – so if you combine the two that puts the greater Silicon Valley metroplex at 36.2%.
There’s a special phrase for this sort of thing: The rich get richer.
The nation’s technology wealth is wildly concentrated in a handful of places. Add in Los Angeles at 7.2% and just five places (or four if you think of San Francisco and San Jose as part of the same place) account for 69.9% of the nation’s venture capital investment. Is that healthy for the country? Add in the next five (San Diego, 2.9%; Seattle, 2.4%; Philadelphia 2.3%; Chicago, 2.2%; Washington, D.C., 1.5%) and the Top 10 account for 81.2% of the nation’s venture capital investment.
The nation’s wealth has always been unevenly distributed but this concentration of the tech sector is different in some unhelpful ways. Think back to the industrial era: If Detroit did well making and selling automobiles, so did the steel factories in Gary, Indiana, that forged that steel and so did the coal mines in Appalachia that supplied the coal to those factories – and so did the railroads that hauled all those things between those cities. Our economy was more connected then. Now it’s not. Silicon Valley isn’t buying algorithms from digit factories in the nation’s heartland. Silicon Valley’s prosperity has almost nothing to do with the economic fortunes of, say, Southwest and Southside Virginia. Likewise, our economic troubles mean nothing in Silicon Valley. In 1953, the president of General Motors famously told Congress: “What’s good for General Motors is good for America.” That may or may not have been true, depending on your point of view, but today what’s good for Silicon Valley hardly matters to the rest of us. Economically, we are living in two different countries.
Curiously, the congressman from Silicon Valley wants to do something about that. Rep. Ro Khanna, D-California, has made a name for himself by advocating the need to “spread the digital wealth.” He’s traveled to parts of rural America to talk about how the nation’s tech wealth can be more evenly distributed. He’s also written a book about this: “Dignity in a Digital Age: Making Tech Work for All Of Us.” This seems quite remarkable. You sure don’t see the congressman from Detroit going around saying, “Hey, we have too many car factories, you want some?” The tech sector operates differently, though. There’s probably a finite number of cars that can be sold in the country; there seems to be an infinite amount of technology we can use in our daily lives.
Khanna will be in Blacksburg on June 9, the first in our Cardinal News speaker series that aims to bring nationally known speakers to our coverage area to address aspects of a changing economy. The event – cosponsored by the Roanoke-Blacksburg Technology Council and the Virginia Tech Corporate Research Center – is free but registration is required. You can do that here.
While we wait to hear what Khanna has to say, here are some obvious economic lessons we can learn from San Francisco and Boston.
- Universities matter. This is a lesson that turns up almost every time I look at some big-league city. Universities are essentially the industrial parks of the information age, pumping out not just a skilled workforce but also spinoffs. There’s a reason why Khanna is speaking at the Corporate Research Center. That’s essentially the center of our Silicon Valley. San Jose has more college grads than any other major metro in the country – 52.7% of the working-age adults. San Francisco is tied for second with the Washington, D.C., area – 51.4%. Boston is third at 49.3%. By contrast, in Southwest and Southside Virginia, the figure is 15%. And that’s the average. Some localities rank in the single digits: Dickenson County, 9.3%. Greensville County, 7.5% (although it’s possible Greensville’s numbers are pulled down slightly by the presence of a prison). Before his death, former Gov. Gerald Baliles asked whether the state should be investing in a Marshall Plan-like effort to raise the educational attainment levels across rural Virginia. This is why. The nonprofit StartUp Genome, which studies start-up ecoystems, says of Silicon Valley: “Stanford University is the seed that spawned the valley . . .” In 2016, General Electric announced it would move its headquarters from Connecticut to Boston. The company’s chairman at the time explained why Boston won out. It wasn’t tax breaks. It was talent. Specifically, universities. “Greater Boston is home to 55 colleges and universities,” he said. “Massachusetts spends more on research and development than any other region in the world, and Boston attracts a diverse, technologically-fluent workforce focused on solving challenges for the world.” Notice that there’s a lot of conversation in the business world right now about “talent attraction” and “talent pipelines.” Not all those talent pipelines go through universities – a lot go through community colleges and career and technical education centers in high school – but many do depend on universities.
- Government investment matters. Before there was all that private venture capital headed to San Francisco and Boston, there was government investment. The roots of San Francisco’s tech rise can be traced back to research in naval communications in the San Francisco Bay; Boston benefited from a lot of World War II-era investment in trying to build flight simulators. According to a history of Boston’s tech industry published in Vox, that wartime push “ended up moving the computing industry from electrostatic tubes to magnetic core memory and, eventually, from mainframes to minicomputers.” In short, it’s hard to imagine either city being the tech capital it is today without that early government investment. That’s why the state budget voted on Wednesday is so important. Among other things, it includes $15.7 million for life sciences labs in Roanoke to help accelerate the growth of a life sciences cluster there.
- Economies change over time. Silicon Valley was once farmland but Boston offers a more instructive transformation. Boston may be a tech city today but in the 1800s and early 1900s it was a textile city. Eventually, textiles collapsed there just as they did in Danville, just at a different time. For Boston, the Great Depression was what wiped out a lot of mills. Employment in textiles dropped by 67%. Boston today stands as a prime example of a city that has built a new economy. It also illustrates how long it takes to do so.
- A community’s culture matters. Boston illustrates another economic point, too: Sometimes communities make mistakes. Vox writes that Boston had a head start on Silicon Valley in computer technology but didn’t capitalize on it: “The region’s businesses clung so tightly to the revenue spun out by legacy products, and aging assumptions about what computers were and who would need them, that they failed to appreciate where the industry was moving.” Boston’s tech companies of the ’70s and ’80s saw computers for industrial uses and missed the rise of the personal computer. One Microsoft executive who once worked in Boston faulted the city’s business culture: “New England companies tend to be frugal. So there weren’t many of the kinds of things you see in the Bay Area right now, with provided meals and that kind of thing.” California companies tended to be more free-wheeling and that led to more innovation, Vox writes. Many of the big computer companies that started in Boston simply died – Wang Laboratories, which at one point employed 33,000 people, filed for bankruptcy. Boston could have been Silicon Valley but got outhustled. The tech growth we see in Boston now is essentially a second wind.
- Healthtech is a sector all to itself. There is one category where Boston beats San Francisco. That’s the sector some call “healthtech” and others call “life sciences.” The economic website Value Walk says that Boston is the No. 1 city in the world for healthtech. New York ranked second, San Francisco third, followed by Los Angeles, Minneapolis, Chicago and San Jose. In fact, the top seven cities are all American – London breaks the streak at eighth place, before San Diego and Philadelphia round out the Top 10. “Boston is, essentially, the equivalent of Silicon Valley, but for the medical tech field,” one researcher told the website Built In. This is relevant to us because the Roanoke Valley is now positioning itself as a player in the healthtech – or life sciences – field. Roanoke’s not going to displace Boston; that city has received more funding from the National Institutes of Health than any other city for 20 years in a row. In sports terms, that’s a dynasty. Roanoke, though, now attracts more research funding than all of its 15 official peer cities put together. Keep in mind, too, how new this phenomenon is. The Fralin Biomedical Research Institute at VTC didn’t even exist until 12 years ago. Many in the Roanoke Valley still don’t appreciate the economic impact it’s having, but all they have to do is look at Boston to see the even bigger impact it could have someday. Here’s a question: Liberty University also has a medical school. What could Lynchburg do to spin off a healthtech sector?
- Neither of these transformations was intentional. Silicon Valley did not set out to become Silicon Valley. Its evolution was a series of happy accidents as military research spun off other things and eventually led to people tinkering with technology in their garage. You may think that origin story belongs to Apple in the 1970s, but it also belongs to an earlier company – Hewlett-Packard in the 1930s. David Packard’s garage is now a museum sometimes called “the birthplace of Silicon Valley.” The point is: No community today should set out to become “the next Silicon Valley” or the next anything else, because the precise mix of circumstances that created Silicon Valley can’t be readily duplicated. They should set out to become a better version of themselves, whatever that may be, although some lessons are universal. By contrast, the Roanoke Valley’s ongoing transformation is more intentional. Community leaders saw back in the 1980s that the lack of a state research university was an economic hindrance, and they set out to build closer ties to Virginia Tech. The founding of the Virginia Tech Carilion School of Medicine and Fralin Biomedical Research Institute was a direct result of that.
Oddsmakers have installed the Warriors as favorites over the Celtics, but the teams still have to play the games to find out who the champion will be. So do Southwest and Southside.