Fostering Innovation-Based Growth Centers in the Heartland: A New Way to Counter Regional Divergence and Drive U.S. Competitiveness

Monday, January 20, 2020

It has become clear that the future of developed economies lies in advanced innovation industries – both in newer “tech” industries and many traditional industries being transformed by technology.

Unfortunately, in many nations, including the United States, the technology economy has widened regional divides between a small number of dynamic, high-tech “superstar” metropolitan areas and most others. Rather than growing together, many nations’ metros have been growing apart—and that has been a shock, including for an economic and policy mainstream that has long trusted the self-regulating, welfare enhancing nature of the market.

At least in the United States, for much of the 20th century market forces had tended to reduce wage, investment, and business-formation disparities between more- and less-developed regions. By narrowing the divides, the economy ensured a welcome “convergence” among places. However, in the 1980s, that trend began to break down as digital technologies and innovation moved to the center of economic activity that also became globalized. Intense new demands for talent and insights increased the value and dominance of “agglomeration” economies, unleashing self-reinforcing dynamics that increasingly benefited big, usually coastal regions, often to the detriment of metros in other areas of the nation. Amid these conditions, the convergence trend gave way to “divergence” as a fortunate top tier of big, techy innovation metros like Austin, Boston, San Francisco/San Jose, and Seattle began to consistently outperform less-tech-based metros on measures of innovation-driven prosperity.

The result is now a crisis of regional imbalance at a continental scale that is throwing off disturbing side effects that cry out for response. Among the “superstar” metros the “winner-take-most" dynamics of the innovation economy have led to dominance but also livability and competitiveness crises—spiraling real estate and wages costs, traffic gridlock, and homelessness. For the many “left behind places,” the struggle to keep up has brought an air of frustration as fears of stagnation or decline have been realized.

Neither market forces nor bottom-up economic development efforts have closed this gap, nor are they likely to in the future. Existing companies and startups want to locate in already successful innovation hubs, in part because they support innovation itself; and knowledge workers, many with STEM degrees want to work there, in part because the professional opportunities are so rich and diverse. This process of success breeds more success. And state and local tech-based economic development efforts, while often useful, are too dispersed to gain the critical mass needed to help transform a few places into self-sustaining tech hubs.

What is needed is a major federal government push to help transform a short list of “Heartland” metros with some existing strengths into self-sustaining innovation “growth centers”. To do that the Information Technology and Innovation Foundation and the Brookings Institution recently released a report proposing that Congress assemble major package of federal innovation inputs and supports that would help select metropolitan areas not geographically near existing successful tech hubs to support transformative innovation-sector scale up. The report envisions Congress establishing a competitive process where the most promising 8 to 10 growth centers would receive support for 10 years in order to get over the hump and become self-sustaining innovation centers. Such an initiative would not only bring significant economic opportunity to more parts of the nation, but also significantly boost U.S. and innovation-based competitiveness.

Robert D. Atkinson is founder and president of the Information Technology and Innovation Foundation (ITIF), recognized as the world’s top think tank for science and technology policy. He is the author of Big is Beautiful: Debunking the Mythology of Small Business (MIT Press, 2018) and Innovation Economics: The Race for Global Advantage (Yale, 2012).

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