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The Economy After Labor and Capital

Workers of the world unite and retire.
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Cleveland, Ohio. (Photo: Matteo Turilli/Flickr)

Cleveland, Ohio. (Photo: Matteo Turilli/Flickr)

Historically, the presence of labor and financial capital mapped economic geography. An abundance of labor would attract financial capital. An abundance of financial capital would attract labor. The relationship between the two explained the world. No more:

Digital technologies increasingly make both ordinary labor and ordinary capital commodities, and so a greater share of the rewards from ideas will go to the creators, innovators, and entrepreneurs. People with ideas, not workers or investors, will be the scarcest resource.

The relationship between labor/capital and ideas is the new economic geography. Labor and capital will stream toward people with ideas. The jobs are located in centers of knowledge production. Firms and talent will migrate toward such locations.

Where won't labor and financial capital converge? Most of the world will be left out of the collisions. Ideas are dear. Some countries produce labor. Some countries produce financial capital. Few produce knowledge. Even fewer properly leverage knowledge production.

The move of Philips Healthcare from Silicon Valley to Cleveland, Ohio, provides a good example of how this knowledge economy works. Financial incentives played a big part in the relocation, but fail to tell the whole story. The attraction:

Philips earlier this month was awarded $5 million from the state's Third Frontier economic development program under the condition that it relocate the R&D center. The company also has been awarded a $500,000 forgivable loan from the Global Cardiovascular Innovation Center, a Cleveland Clinic-led business accelerator that was started with Third Frontier money.

Any state could offer money and tax cuts. But most states don't have a Cleveland Clinic. Companies desire to be in close proximity to where the ideas are created. On this score, better to be in Cleveland than Silicon Valley.

Jim Russell, a geographer studying the relationship between migration and economic development, writes regularly for Pacific Standard.