Recently, I’ve read the New Geography of Jobs by Enrico Moretti. It’s a great
read for anyone who’s curious about economics. I have a book podcast I do with a
close friend of mine where we go deeper into the discussion. One of the most
compelling chapters I’ve found while reading was The Great Divergence.
In short, it’s this socioeconomic shift that took place in America during the
20th century when the economy transitioned from manufacturing to innovation. The
results caused a rapid rise of prosperity in select few regions while the rest
of the country declined or stagnated. The effect of a country relying on
innovation for future growth is much different than the old-style manufacturing
economy of the past.
Before there were high-speed internet and smartphones that fit in your pocket,
decades ago, the American economy relied heavily on manufacturing. Manufacturing
was the key factor for economic success for regions across the country. It
wasn’t that most Americans spent their days working on the assembly lines, far
from it. A factory in a thriving community was a magnet for goods and services
provided by other local businesses. These businesses serviced either the
factories themselves or its workers employed. An entire ecosystem filled with
supermarkets, teachers, lawyers, doctors, etc. would form creating a thriving
economic zone.
Now, what makes factories particularly different from these new innovation
clusters, which we will discuss later, is that factories could be placed
anywhere in the country. There are no other requirements a community would need
besides able-bodied people with access to transportation. This is almost
anywhere in the US. Thus, as a result, at the height of the American
manufacturing economy, poorer cities like Cleveland were slowly closing the gap
with their wealthier counterparts like New York City.
However, in the 1980s, American cities started to increasingly rely on their
residents’ levels of education. Cities with many college-educated workers
attracted even more, and cities with a less educated workforce declined in
prosperity. Manufacturing was no longer the dominant sector of the economy, as
those jobs became increasingly automated and sent overseas. This is when the
divide or The Great Divergence between different geographical regions in America
began. A handful of cities with the “right” industries and a solid base of
college-educated residents attracted the best companies, and the cities with the
“wrong” industries were left with dead-end jobs and low wages.
Since this handful of cities with highly educated workers attracted more
companies, and those companies attracted more workers in a virtuous cycle, this
cycle continued and the differences are even more staggering today. Highly
educated workers tend to benefit more from living near others with similar
education levels. Communities with a high percentage of educated residents saw a
reduction in crime, higher life expectancy, and a rise in productivity resulting
in higher wages. In addition, these educated residents had a much broader impact
on the non-skilled workers around them; affecting both the types of jobs
available and the productivity (and salaries) of every worker in the area.
The book goes into much greater detail on how these forces continue to shape
cities across regions and is well worth the read. As individuals, a key takeaway
from this book is to have a college degree and move to an innovation cluster.
The levels and opportunities for success increase significantly by living in
these areas. The access to world-class companies and the ability to learn from
peers in your industry put one at a competitive advantage compared to residents
of other areas. The differences are staggering and compound over time. If you
want to learn more, feel free to give it a read or check out the podcast we did
on the book.