What's luck got to do with it? Why some cities are more successful than others

The question I’m asked more than any other – by journalists, policy-makers, city officials and politicians – is why are some cities more successful than others?  My answers invariably highlight factors such as history, skills, industrial profile, transport, governance, enterprise, etc.  Sometimes they also reference luck. 

The excerpt below  from a recent Econtalk podcast involving Enrico Moretti, author of the New Geography of Jobs, and the host Russ Roberts, highlights this element of luck. (NB. I’ve slightly edited the text to help the flow.) 

The story of Microsoft and its owners’ very personal reasons for relocating to Seattle reminds us that successful cities are often successful for idiosyncratic reasons. It shows that, although policy interventions can help cities succeed - as our forthcoming report Cities Outlook 1901 will show - sometimes cities can do well simply because they were in the right place at the right time, or someone grew up there. In other words, something random can boost their chances of success.

It’s hard for policy-makers to plan for this, but they can at least a) ensure they offer a good business environment for any future Microsofts, and b) keep an eye on which cities are getting lucky, and try to help them make the most of it.

Russ Roberts:  “You contrast the difference between Seattle and Albuquerque. And one of the reasons it's such a great contrast is we have such a romantic vision of Seattle today, because of Amazon and Microsoft and other high tech companies. But it wasn't always that way.” 

Enrico Moretti: “That's right. As you pointed out, we have this great image of Seattle today – it is vibrant cosmopolitan local economy. But in the late 1970s, Seattle was in very different conditions. Seattle as an economy was heavily focused on traditional manufacturing and services for lumber industries. As you can imagine, in the 1970s, these were not great industries to have. The only innovative part of their economy was Boeing. But Boeing was struggling in the late 1970s, laying off people by the thousands. So the economy was in really poor shape, and people were leaving the city by the thousands. At some point the situation was so dire that a billboard went up on the freeway that goes from the airport to downtown that said: The last one out of Seattle, please turn the lights off. And that billboard, to me, was a sign of a community in decline. 

But there's something that happened that changed the history of the city forever, and it has to do with Microsoft. Microsoft was not founded in Seattle. At the time it was in Albuquerque, New Mexico. Albuquerque at the time was more high tech than Seattle. And in fact the main reason Microsoft was there was that their first client was there. Microsoft stayed there for four years and was doing fine, was prospering. But in 1979, Bill Gates and Paul Allen, the founders, decided that they wanted to be close to their families – who were in Seattle. So they relocated the company back to Seattle. Now, at the time this was a small company, 15 employees. And nobody really paid attention to this move. But in retrospect, that was the seed that was responsible for the growth of the high tech sector in Seattle and the complete reshaping of the local economy, and the rebirth of the city both economically, culturally, and in terms of amenities.

If you look, for example, at wages in Seattle and Albuquerque, you see that at the time of the move they are not all that different, and more important, they are trending in very similar ways; they are changing from year to year in very similar ways. But after the move, as Microsoft started growing and started attracting around it many high tech firms, you start seeing the wage in Seattle growing much faster than Albuquerque. Albuquerque's economy starts struggling, effectively for three decades after this move. But the Seattle economy starts booming. And the larger Microsoft becomes, the larger the gap between the two cities becomes. And it's not just the wage. It's the number of college graduates, for example, in the two cities. Every passing year, the gap increases. It's now almost double in Seattle relative to Albuquerque. Although the two cities were not all that different economically in 1979, they are almost like two different countries. One is an advanced, driven economy; the other one is the struggling middle-income country.”

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Comments

[John Charlesworth]

You point out " .. right place at the right time, or someone grew up there" as one reason a place can be successful. That is true as the US has shown. However our own culture now seems to shy away from encouraging this type of entrepreneurial spirit. Or maybe you can cite such places as examples.

[John King]

Moretti fails to recognise that the Microsoft story did actually start in Seattle: Gates was a student at a prep school which, thanks to his mother (a teacher and University of Washington regent) acquired a computer terminal, which at the time was incredibly high technology.

There is a clear policy implication here: get your schools right, get cutting edge technology in front of children, and economic benefits will follow.

[andrew]

Also Albuquerque was home to 'older' room sized computers (see Digital Equipment Company) rather than the home based personal computer, so to some extent the technology of the sector made a leap and Albuquerque was not part of that leap. Arguably if Digital had recognised that the PC was the future (see Ken Olson's quote from 1977: "There is no reason for any individual to have a computer in his home".) then we would be talking about how Albuequeque s just as rich/successful as Seattle...