1. Economy
February 17, 2021updated 21 Feb 2022 3:37pm

So your city wants to be the next global tech hub

More places want a slice of the tech innovation pie, but there is lots to consider when integrating tech companies into the fabric of a city.

By Camille Squires

people walk past a building with a Google logo

Google’s New York office in lower Manhattan, 2018. (Photo by Spencer Platt/Getty Images)

In early December 2020, Silicon Valley venture capitalist Delian Asparouhov mused on Twitter: “ok guys hear me out, what if we moved silicon valley to miami.” Miami Mayor Francis Suarez offered a simple reply, which quickly went viral: “How can I help?”

The interaction was part of the mayor’s intensive online campaign to make Miami the next Big Tech hub in the US. In online conversations with Elon Musk, meetings with tech entrepreneurs and even appearances on the exclusive social networking site Clubhouse, Suarez has tried to capitalise on the latest wave of migration of people and companies away from the San Francisco Bay Area, making the case for Miami as their destination.

The economic upsets of the past year have only strengthened existing speculation about the “end of Silicon Valley” as more US tech workers leave Northern California in favour of Austin, Texas, with its thriving ‘Silicon Hills’ sector, as well as other burgeoning tech hubs, including Boston, Boulder and Raleigh.

It’s not just a US phenomenon: Manchester in the north of England is leading UK cities in efforts to capture some tech capital from London as one of the nation’s top destinations for tech workers and venture capital. The southern Indian capital city of Bengaluru was recently named the world’s fastest-growing tech city, surpassing London and Mumbai. Tel Aviv is driving the tech sector in Israel, with R&D centres for global companies like Google and Facebook, as well as the highest number of start-ups per capita in the world.

There’s no shortage of reasons why city leaders might do everything they can to secure a portion of the booming tech economy. There’s huge potential for job growth, a stronger tax base and an influx of talent and money, not to mention prestige.

But enough cities have been through this to draw a road map of the disruptions that can come with success: rapid change can bring rising inequality, enormous pressure on housing and political backlash to tech companies and the leaders who courted them. Well-established patterns can offer a warning for the new class of aspiring tech hubs as well as lessons on how to guard against inequality in pursuit of economic growth.

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The role of Big Tech in inequality

A booming tech sector does not benefit all residents of an area equally. As Aisha Majid reports, data from tech hubs like San Francisco, Seattle and Dublin has shown the ways that a rapidly growing tech industry creates and exacerbates inequality in everything from wages to housing. Over the past decade, Silicon Valley has experienced some of the most rapidly expanding inequality in the country. This has created significant fallout against the tech companies meant to generate wealth for a city.

It’s not hard to see why. People who expect to have access to these high-paying tech jobs see opportunity; people who don’t might look to other tech cities and see soaring housing costs, strained infrastructure and insufficient wages outside the tech sector.

What we have to do is not create an additional second class of people who can’t afford to live in an environment created by tech. Jeffrey Watson, City of Miami

Perhaps the starkest example of this comes from Amazon’s quest to find a home for its second headquarters, dubbed HQ2. It began as a competition with more than 200 North American cities promising lucrative tax breaks, infrastructure upgrades and other incentives to win 25,000 high-paying jobs.

When Amazon selected Queens, New York as one of the winning sites in 2018, opposition was swift. Some residents, community groups and politicians organised against the plan, concerned about the ways HQ2 could drive up rents and congest streets while tax breaks sapped the city of resources. It was enough to make the company reverse course, pulling out of Queens and moving forward with its plans for a campus in Arlington, Virginia.

Similar resistance has emerged in Berlin, where in 2018 residents organised against a planned Google office in the relatively affordable Kreuzberg district, and in Toronto, where local organisers resisted “smart city” development plans for the waterfront, proposed by Sidewalk Labs, a company owned by Google parent Alphabet, leading them to ultimately pull out of the project.

Is a city structurally ready for tech?

It’s important to note that these events happened in major cities with strong, diverse economies and workforces. Newly aspiring tech hubs may face another set of challenges that can stem from what Greg LeRoy, executive director of Good Jobs First, an economic development watchdog group, calls the “buffalo hunting” development strategy of trying to attract one or two large companies to a city.

“That’s a real losing strategy,” LeRoy says. “It often leads to chasing things that are not very good jobs: Amazon warehouses, call centres, things like that.”

Instead, he says, cities do better when they invest in existing institutions and economic sectors – building out components like customised training programmes and offering assistance to small companies in specific sectors that already have a presence.

“You’re betting on a finite number of sectors that you think have a competitive chance to succeed, but you’re not putting a lot of eggs in any one basket,” LeRoy says.

This “playing to one’s strengths” strategy has played out in Pittsburgh over the past several decades. Billions of research dollars invested in Carnegie Mellon University and the University of Pittsburgh have put the city on the map for robotics and biomedical technology. Between 2009 and 2019, the city attracted some $6.6bn in investment in tech start-ups, including a much-celebrated Uber campus dedicated to the development of autonomous vehicles. (Uber’s self-driving unit has been acquired by another company as the AV sector adapts to the underwhelming realities of the technology.)

Even for a city as big as Miami, there are lessons worth learning here.

“The tech space is a good thing to bring about,” says Miami Commissioner Jeffrey Watson. “However, we have to make sure we get prepared. We do that by starting all the way down at the bottom and make sure schools are prepared for our residents to take advantage of what’s to come.”

Are a city’s workers ready for tech?

One helpful way to understand the state of a city’s workforce – and its readiness for change – is to look at its location quotient, a measure of how densely concentrated any one industry is versus the national average. This can offer insight into a place’s economic strengths and weaknesses.

San Francisco and Seattle, unsurprisingly, have some of the highest concentrations of tech workers in the US. In 2019, each metro area had about five times the national average, according to data from the US Bureau of Labor Statistics. The Miami area, by contrast, had about 30% fewer of these jobs than average.

As Miami’s District 5 commissioner, representing the city’s historically black communities, Watson understands that in most of the city, where the economy is based heavily in the retail and hospitality sectors, residents won’t be able to benefit from high-wage tech jobs without retraining.

He expects that this change in the workforce will take time; the first round of tech investors is unlikely to create many job opportunities for local residents, Watson says. But over time, as companies take root, they can hire local residents prepared with a strong educational background, offering access to higher-paying jobs than in retail and hospitality.

Steven Pedigo, an urban studies professor at the University of Texas at Austin, cautions that expanding a tech sector without worsening inequality must be an explicit goal of city leaders. It won’t just happen on its own.

“The innovation economy by nature has high levels of inequality,” Pedigo says. “So that means you have to put guardrails on it – not necessarily in terms of controlling growth, but being specific about things like workforce development. Left to its own devices, capitalism never cares about equity.”

Housing affordability has been one of the clearest – and most devastating – inequities spurred by the tech boom. After nearly a decade of soaring rents that push people out, the experiences of San Francisco and Seattle have become a sort of parable for other cities about how to plan against a housing crisis. It’s not merely the presence of a wealthy technocratic class that causes a housing shortage; restrictive zoning laws and insufficient transit infrastructure also play a role. Local officials have policy levers at their disposal to avoid the worst outcomes – they just have to use them.

“It all comes down to intentionality,” says Pedigo.

A place like Miami, which already has one of the most expensive housing markets in the US, with rents steadily climbing year over year, may be especially vulnerable to an influx of high-income tech workers without intervention to increase the affordable-housing stock. Watson is hopeful that locally created tech jobs can push up wages to help more people afford homes, but as experiences in other places have shown, it can also do the opposite.

Where venture capital is (and isn’t) going

The growth of any healthy tech sector isn’t driven solely by smart people but also by money to fund their ideas. Venture capital (VC), the lifeblood of a tech innovation environment, tends to move more slowly than employees or even company headquarters.

Much of the interest in growing Miami’s tech sector has come from this VC wing. Venture capitalists David Blumberg and Keith Rabios moved to South Florida from the Bay Area in late 2020, and Suarez is reported to have met with Paypal and Palantir founder Peter Thiel and former Google exec Eric Schmidt.

But at this juncture, these developments may be more flash than substance. Across Europe and the US, the existing giants still dominate; data from VC firm Atomico shows that in Europe in 2020, London saw $9.6bn in VC investment in 2020, the most in Europe. Stockholm saw growth in its VC funding, raising $2.7bn in total, and Paris has seen steady year-over-year growth in such funding since 2016. According to data from PitchBook, roughly 40% of 2020 VC funding in the US remained with Bay Area companies, as it has for the past ten years. Florida received only about 1% of VC deal activity.

Suarez appears to be unfazed by this, seeing the lack of investment so far as an opportunity. “My point is, there is plenty of room to grow,” the mayor told Bloomberg News in a January interview. But for all the public campaigns mayors can do to call attention to their city, experts like LeRoy say the most effective action they can take comes down to basic governance principles like investing in development goals that benefit the larger community. LeRoy emphasises the importance of “making public systems ‘sticky’ and creating a value proposition that diffusely benefits lots of companies”.

Suarez, like previous mayors did with Amazon, is pushing incentives to companies in his efforts to draw tech to Miami: no state income tax, a state corporate tax that’s 3% lower than California’s and a generally pro-business environment. Watson is counting on those who would come to take advantage of these perks to then reinvest in the community.

“It’s nothing for someone to say, ‘I’m moving to Miami.’ But what are you going to do next?” Watson says. “What we have to do is not create an additional second class of people who can’t afford to live in an environment created by tech.”

The case for more tech hubs, not fewer

There are plenty of good reasons for a city to want a thriving tech sector, not least because increasingly, technology is the economy. Like the manufacturing boom of the 20th century, digital goods and services have taken on a central role in the economies of developed nations all over the world.

There’s also research suggesting that a less concentrated tech sector would benefit more places and ultimately a nation as a whole. A 2019 Brookings Institution report on the growth of tech innovation centres found that the hyper-concentration of tech in a few metropolitan areas has hurt tech cities and non-tech cities alike; those places where tech companies are concentrated suffer from reduced competitiveness, while smaller cities lag behind in development, employment and wages. Any one city need not be the next Silicon Valley, but many locales may benefit from winning a small slice of the silicon sector.

To make the benefits as accessible as possible requires intention and planning from a city. Big Tech’s leaders are already showing a willingness to find new places with more favourable conditions. Cities hoping to win them over would do well to plan now for the predictable disruptions so the benefits can be felt more broadly throughout the economy.

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