Cities have been central to the human civilization. Their dense population provides a platform for the serendipitous interactions and cross-pollination of ideas from different domains, their abandoned portions provide cost-effective real estate to struggling artists and entrepreneurs, their riches provides jobs, sometimes, side-jobs for the innovators to experiment. No wonder innovation in a city grows super-linearly (~(size)4/3) with its size.
But the Internet was supposed to destroy all advantages a city has over the rural areas. The Internet was supposed to convert all of us into a global community. It did. But the cities have emerged even stronger, everywhere. One way to rationalize this is to realize that the Internet provided a platform to the cities a rent seeking ability which was extremely limited in the pre-Internet era. When a family in Kansas books an Airbnb in Thailand using Mastercard credit card, books the flight with Expedia, and uses an Uber in Thailand then these intermediaries take a cut. Similarly, when a person in Nebraska buys West Texas Intermediate from New York stock exchange, then New York stock exchange takes a cut. Now, what happens when these companies take these cuts? A big chunk of that is used for salaries, expenses, or charity donations which usually are highly localized activities and benefit the cities where these companies are headquartered. Most of these rent-seeking activities were either non-existent or of limited leverage in the pre-Internet era.
- The first paragraph of this blog post is heavily inspired by “Where good ideas come from” book.
- The city term I am using is akin to an urban area. In the US, a suburb is seen as a separate entity, which I am treating as a city in this parlance.