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Silicon Cleveland, Where the Rent Isn't Too Damn High

Why bother with the high talent costs of London, San Francisco, or even Warsaw?
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The Terminal Tower complex, with the Warehouse District, the Cuyahoga River, and Lake Erie in the background. (Photo: Lisa Chamberlain/Flickr)

The Terminal Tower complex, with the Warehouse District, the Cuyahoga River, and Lake Erie in the background. (Photo: Lisa Chamberlain/Flickr)

At one end, we have the next Detroit. At the other, a host of regions are vying to be the next Silicon Valley. Making the continuum into a circle, Matthew Yglesias:

A lot of the feedback focused on the question of whether Cleveland is really the best place to do this. Here's how I came up with Cleveland. I wanted to pick a "rust belt" that's experienced significant decline, with the thinking being that cities like that tend to have a lot of good infrastructure that's currently underused. Great old buildings that are vacant or cheap, plus buildable land in the central city. Then to further narrow it down, I liked Cleveland and Detroit because they're officially designated hubs for United Airlines and Delta respectively. Then Cleveland ultimately got the nod because I'm a little bored of reading articles about Detroit. ...

... The point is that because of the difficulty of adding new housing units and new square feet of office space to either Silicon Valley or San Francisco, the country as a whole is suffering a substantial loss. Individual firms or tech-savvy workers can and do respond to real-estate constraints by simply locating elsewhere. But since the United States of America is a very big country, "elsewhere" encompasses a lot of different places. By spreading out so widely across the country, however, the technology firms and technology workers who aren't in the San Francisco and San Jose metropolitan areas end up denying themselves the substantial economic advantages that come from agglomeration. There's essentially a coordination problem, where a concerted effort to make any one particular place another big hub (in my proposal, by somehow making Apple, Google, Facebook, and Twitter simultaneously all move there) could solve the problem and produce large aggregate gains. The nature of a coordination problem is that it's not actually super-important where you coordinate—there's a strong case for Pittsburgh or for a bigger city like Chicago or for a Sun Belt city like Phoenix or San Antonio—the important thing is to coordinate.

In Silicon Valley, the rent is too damn high. Yglesias recommends moving the show to Cleveland where housing is in ample supply. Housing is in ample supply in many places. Whittle the contenders down with a review of airport connectivity. Boom. Cleveland.

I don't have an issue with the methodology Yglesias uses. I understand the problem described. The economic geography is whack. Reality in Ontario:

“We were interested in having a good mix of senior experienced people who could do things in the area and also a lot of new and up-and-coming people,” said Mr. Phillips, who is now the engineering director for Motorola Mobility Canada. “That has been very successful for Google, so I was interested in the same kind of balance for Motorola.”

For employers, he said, the competition to hire the best talent is less intense in Kitchener-Waterloo than in many other places, including California; employee turnover is much lower; and the community offers services like Communitech to help with recruiting. And because Canada’s immigration laws are more flexible than those of the United States, tech companies are also able to add talented foreign workers to the mix.

For employees, Mr. Phillips said, the area offers reasonable housing prices, good schools and other attractions.

Silicon Valley innovation is converging whether or not the show moves to the likes of Cleveland. Silicon Valley already is moving to the likes of Cleveland. Talent attraction is expensive and unreliable. If not Cleveland, try Lodz, Poland:

In Poland, 39 percent of people 25 to 34 years old have university degrees or the equivalent. This puts the country in second place behind Norway in that category among the nearly three dozen member countries of the Organization for Economic Cooperation and Development. (The United States, at 35 percent, ranks 11th.)

And Poland’s well-regarded universities have been willing to modify their curriculums to produce graduates with the skills sought by companies like Infosys.

“There is a strong correlation between education and the success of Poland,” said Anurag Srivastava, a New Delhi-based practice director at the Everest Group, which advises corporate clients on managing outsourcing and back-office operations.

With competition for skilled workers rising in major cities like Warsaw and Krakow, companies have been opening business service centers in smaller cities like Lodz. That benefits the Polish economy, because the smaller cities tend to have higher unemployment than big cities like Warsaw, which has a jobless rate of only 4.8 percent compared with a national figure of 13 percent.

Lodz, where unemployment is 13.7 percent, is still recovering from the collapse of the textile industry after the fall of Communism and seems caught between two eras. A complex of brick buildings that was once part of the fabric industry has been converted into a hip hotel and shopping mall filled with French and German retail-chain outlets. But much of the city still has the drab, crumbling ambience of Eastern Europe in Communist times.

Infosys needn't bother with the high talent costs of London, San Francisco, or even Warsaw. It has Lodz. Lodz is Cleveland and Waterloo, the next Bangalore without the hassle. The hypothetical of Yglesias, his goofy thought experiment, is here and now.