Reurbanization of American Entrepreneurship
Automation eats the world.
There is a shift of people moving back into areas that have been previously abandoned. According to a new analysis of Census Bureau data by the Economic Innovation Group (EIG), Americans in small counties are much less likely to start new businesses. More groups of people are being driven to large areas such as New York City, Silicon Valley and Washington, DC to either launch new businesses or work for high-growth startups. Automation and external economies of scale have increased the productivity of entire industries or, in this case, geographical areas.
EIG’s findings capture an economy veering towards a less broadly dynamic, more automated, and more geographically concentrated equilibrium. The geographic landscape emerging from the recent recession led to operating equipment such as machinery, processes in factories and other applications with minimal or reduced human intervention. Some processes have been completely automated. Nearly three in five counties saw more business establishments close than open from 2010 to 2014. In only 17 states did a majority of residents live in high-growth counties.
The types of entrepreneurship and technology we’ve traditionally seen in small towns is disappearing, which in result leads to unemployment and flight. A new era of entrepreneurship is drawing Americans from rural areas to cities and is directly correlated to urban startup activity.
The collaboration of peers, enabled by technology, can only succeed within a connected network or ecosystem. The best networks exist in highly concentrated metropolitan regions. Transient and lively cities populated with active citizens provide attractive testing grounds for startups, especially in the sharing economy. Collaborative consumption is more about reducing costs, often by thirty percent, and leveraging excess capacity by building platforms for participation that organize and simplify the work of these collaborating peers. New marketplace opportunities within the sharing economy can be fulfilled on both the supply and demand side due to the vast pool of potential applicants.
“Capital chases high-growth ideas, and high-growth ideas tend to be concentrated in areas of highly educated and highly skilled workforce,” said Manuel Adelino, an economist at the Fuqua School of Business at Duke University in an interview with the Washington Post. Specifically in DC, it is estimated there are more than 1.6 million millennials living in the 23 counties that make up the greater Washington, D.C. region, compared to more than 1.3 million baby boomers. For every baby boomer across the metro area, there are 1.2 millennials.
For competitors, however, pursuing automation may be a race to the bottom. Automation lowers everyone’s costs, but it also lowers profit margins that may result in businesses applying similar methods and not so innovative thinking. We are already seeing negative network effects in adjacent industries. With regards to real estate, there are record-high office vacancies in major suburban thoroughfares. Jonathan O’Connell states, “The pain for Washington building owners is most acute in the suburbs, where vacancy rates have been on the rise for five years in a row and are about double that of the District. By one count, there are 151 spaces of 50,000 square feet or more available in Northern Virginia alone.” Vornado Realty Trust of New York booked a $160 million loss on the properties in the first quarter this year and put them on the market. In addition to more options than ever, startups simply aren’t taking up as much space as they used to and prefer to bike or Uber than commute long distances to work.
It will be interesting to see what becomes of working environments for tech enthusiasts in secondary tech markets outside of city centers. Although the market is currently bending towards reurbanization in dense cities, there may be an opportunity for large corporations like Walmart, located in Bentonville, AR with a population of 40,000, to attract entrepreneurship back to their respective communities. It’s the small towns like Bentonville that have the potential to be high collision environments. Rather than replacing jobs, automation would complement professional expertise. Whether in the form of an accelerator, co-working location or a member of a National network, there should always be space where talent can converge on itself and people can come to accelerate a company beyond its perceived value. Entrepreneurs are the citizens of substance in the community and shouldn’t feel compelled to uproot and move to urban areas.
