photo: people in an atrium
Attendees at Austin Startup Week in Austin, Texas, September 2019. Drew Anthony Smith/AP Images for Booz Allen Hamilton

Just four coastal areas of the country dominate on the Startup Complexity Index, a new measure developed by researchers at the Brookings Institution.

Growing regional inequality is one of the most serious problems affecting America today. Perhaps the most pointed example of this worsening winner-take-all geography is the extraordinary concentration of high-tech startups in just a handful of cities and metro regions across the country.

A recent study by Joseph Parilla and Sifan Liu of the Brookings Institution’s Metropolitan Policy Program looks at this concentration but adds a new measure: startup complexity. The researchers have created a “Startup Complexity Index” (or SCI) that ranks metros on two dimensions. Startup diversity captures the number of technologies that a region has advantage in, and startup ubiquity measures the number of metro areas that have an advantage in a high-tech field. According to the researchers, these two dimensions represent the frontier of economic development that may serve to compound and reinforce economic advantage and spatial inequality over time.

Startup complexity is not just important in its own right—it is closely connected to the broader prosperity of cities and regions. The researchers developed their index using the well-known Crunchbase data set of venture-capital-financed high-tech startups. Their measure covers more than 25,000 startups operating in more than 400 technology fields and located in 421 metro areas. The Brookings chart below shows how metros with higher SCI scores also have higher wages, incomes, and productivity (measured as output per job).

“This highly uneven geography of startup complexity matters, because the SCI appears to be a strong indicator of local prosperity,” the authors of the study write. “In metro areas with a higher SCI, workers are more productive and earn higher wages, and households have higher incomes.” While the analysis does not identify causal relationships between startup complexity and these regional economic outcomes, the researchers point out that it does suggest very strong correlations.

The study’s findings are in line with my own research and that of others who also find close associations between high-tech startups and regional economic performance. But, because it measures the capacity of metros to develop a wide variety of technology fields, the SCI is likely an even better gauge of regional economic development than simple counts of startup activity or of levels of venture capital investment.

There is a broad body of research that finds that the ability of places to develop diverse technological capabilities translates into higher levels of productivity, higher incomes, and higher levels of economic growth. History is littered with places that decline when they become too specialized and overly dependent on one industry and one set of technological capabilities, like Pittsburgh with steel or Detroit with automobiles. In her landmark book Regional Advantage, AnnaLee Saxenian of the University of California, Berkeley, showed how the San Francisco Bay Area has been able to move from one technological field to the next: from computer hardware and software to biotechnology, social media, and artificial intelligence. In this way, a broad set of technological capabilities—reflected in a high score on the SCI—are key to the long-term ability of cities and regions to grow and prosper.

But based on their metrics, the current geography of high-tech America is incredibly uneven. The map above shows how U.S. metros stack up on the SCI. Green dots on the map highlight places that score high on the SCI, while brown dots indicate low-scoring metros. With the exception of just two cities, Chicago and Austin, all of the green or blue dots (indicating a high level of startup complexity) are located on the coasts. Indeed, just four coastal superstar city-regions dominate on the Startup Complexity Index: the San Francisco Bay Area (including both the San Francisco and the San Jose metros), New York, Los Angeles, and Boston-Cambridge. Together, they house nearly two-thirds of all high-tech startups in the Crunchbase dataset tracked by the study, while being home to less than 15 percent of the U.S. population.

San Francisco has the highest startup diversity, with nearly a quarter of all startups and advantages in a whopping more than two-thirds of technology fields. New York City is next, with more than 15 percent of startups and advantages in more than 60 percent of high-tech fields. Los Angeles and San Jose each have roughly 9 percent of startups: L.A. has advantages in almost half of high-tech fields, and San Jose in almost 40 percent. Boston has 6 percent of companies and advantages in about a third of high-tech fields. Other significant hubs include Chicago, Seattle, and Austin, each with at least 2 percent of startups and advantages in more than 100 technology fields. Miami, Atlanta, D.C., Dallas, Denver, and Philadelphia have about 1 percent of startups and advantages in 60 to 85 high-tech fields.

The vast majority of metros have few, if any, distinct advantages in startup technology. This includes some talked-about up-and-coming tech hubs like Pittsburgh, Nashville, and Detroit, as well as smaller hubs that have sprung up in college towns like Ann Arbor, Madison, and even the North Carolina Research Triangle. Here, the study provides limited evidence in support for the so-called the “rise of the rest:” the emergence of new high-tech centers in other parts of the nation.

But the geography of high-tech may not be as hard-wired as we think. Greater Boston and the San Jose area were once the unquestioned leaders in startup technology; today they account for just 15 percent of high-tech startups. The past two decades have seen the incredible rise of the three major new tech hubs: San Francisco, New York, and Los Angeles. These places, which had much lower levels of high-tech startup activity back in the 1990s, now account for roughly half of all high-tech startups.

While the current geography of high-tech startups remains highly uneven and winner-take-all, the combination of the deepening new urban crisis of housing unaffordability and economic inequality and the mounting backlash against tech firms suggests that we may be reaching another inflection point in America’s high-tech geography.

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