The Internet and the City Advantage

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.

Note:

  1. The first paragraph of this blog post is heavily inspired by “Where good ideas come from” book.
  2. 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.

3 Replies to “The Internet and the City Advantage”

  1. Very interesting argument Ashish. Rent is still concentrated in large cities because vast majority of the workforce leading innovation is concentrated in these urban centers.

    Fully distributed/remote workforce is still an alien thought for most of the companies. Also, the impact of workforce distribution on innovation has still not been gauged on a large scale.

  2. Thought-provoking post.
    – Perhaps a concept similar in spirit to SEZs, but different in implementation, should be thought through for this divide.
    – One could make an argument with data that just like for humans, the divide between haves and have-nots will grow for locations/geographies too. 5 decades ago, the divide was caused by the difference in industrial (urban) and agricultural (rural) productivity. With the internet era, the urban side has higher productivity with lower capital investments.

  3. Fair points, Shashank. I don’t, however, agree that SEZs would help much. In fact, SEZs are effectively cities created via policies.

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