Why the 'Next Silicon Valley' Is Always Silicon Valley

How stars and spillovers make great cities and great companies
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Reuters

Is there a city that doesn't want to be (or suspect that it already is) "the next Silicon Valley?"

New York, Chicago, Los Angeles, Austin, Seattle, Portland, Denver: They've all professed their silicon dreams. A week ago, I was in New Orleans speaking at an entrepreneurship conference about the city's future as a tech hub of the south. For now, these dreams are tempered. It was widely acknowledged that before the Crescent City becomes the next San Francisco, it must first become the next Las Vegas. That is, if it wants the next generation's best minds, it needs the next generation's Tony Hsieh.

The idea that Sin City also fancies itself the next great tech hub might have struck someone from a few decades ago as a lamentable delusion conjured in an alcohol-induced stupor. Today, it's not so laughable. The concept of "Silicon Vegas" is still mostly aspirational—the city's leisure and hospitality industry is twice the size of its core white collar workforce in information and business services (the exact opposite is true of San Francisco)—but it's closer to a reality thanks to Hsieh, the founder of Zappos, who's embarked on an ambitious $300 million project to rebuild downtown Vegas as a haven for techies.

Hsieh's quest might seem quixotic, but the idea of a single person or company catalyzing a city's economic development is historically apt. Great cities take time to become great, but one person or organization can be an inflection point. Vegas has Zappos. Seattle has Gates and Bezos. Boston has Harvard and MIT. Palo Alto has Stanford and Xerox PARC. Software-based entrepreneurship can technically be done anywhere, and yet it tends to cluster in areas like the Flatiron District and Palo Alto, because people who consider themselves talented apparently want to be where they think other talented people are. If the best advertisement for talent is talent, then all things equal, the area most likely to be the next generation's Silicon Valley is ... well, probably Silicon Valley. The benefit of being a magnet for talent doesn't wax and wane. It accumulates.

In sociology, there is a term called the Matthew Effect, which is the idea that most talented people get access to best resources (while the least talented people get the worst), so that what began as a small advantages over time becomes an enormous advantage. This is familiar with our education system: Many of the high schools and colleges that have the potential to make the biggest outcome in student achievement get the best students anyway. Very tall young basketball players, who are more likely to start for an NCAA team in the first place, get the highest quality instruction, redoubling their chances.

In the Matthew Effect, the individual acts like a magnet for small advantages that accumulate to provide a terrific overall advantage. But New Orleans doesn't need advantages that accumulate so much as it needs stars—brilliant workers and thriving companies—that grow and multiply. A new paper "Why Stars Matter" on the effect of star researchers who join university departments finds that wildly productive people actually don't make all of their new colleagues more productive. Instead, their most important contribution to the school is to help recruit more talented colleagues in the future. "Hiring a star does not increase overall incumbent productivity," the researchers sum up in the abstract (full paper here), but "the primary impact comes from an increase in the average quality of subsequent recruits." 

In the entertainment industry, the power of stars as magnets is strong. The fact that HBO produces lavish dramas is itself a recruitment tool for lavish dramas, because if you're a brilliant show-runner with a cinematically complex TV idea, you first pitch the network that already produces cinematically complex TV. Just as great TV begets great TV, the converse can be true, too. In interviews with NBC's research department last year, an executive told me the network's decision to go cheap under Jeff Zucker a few years ago—i.e.: spending less on new programming, moving the relatively inexpensive Jay Leno Show to primetime—succeeded in cutting costs. But in the big picture it failed, because many of the quality show-runners with the best projects simply assumed that NBC wasn't interested or willing to invest in their show. The sociologist Gabriel Rossman has identified a similar trend in his research on Oscar-nominated movies. Since the Academy tends to award movies with multiple stars, it's only rational for celebs to cluster into certain projects.

Clustering is good news for San Jose, because the more talent you accumulate the more magnifying the draw to work there. But it's a distinct challenge for cities like New Orleans, who want to be top-of-mind for the smartest young college graduates, but currently lack both a national business reputation and a Tony Hsieh to suddenly import it. That's the paradox of star companies and people. To get to 100, you need ten. To get to ten, you need one. So how do you get to one?

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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