Book Summary

The Great Divergence

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.

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