Thursday, April 15, 2010

Economist's Notebook: Telecommuting

The real Wall Street Journal piece Mike Rogoway tweeted about today (below) on Bay Area telecommuters who have chosen to live in Portland raises the question: has the world of information technology made proximity obsolete?  You might be tempted to think so, but it turns out that there is a huge amount of economic evidence that, even in the 21st century proximity matters.  I have blogged about this numerous times often using the term of art: agglomeration externalities.

An anecdotal example that is mentioned a lot in Portland business circles is the relative paucity of venture capital in Portland relative to Seattle and the San Francisco area.  Why should this be?  Why, in this era of IT, with wealthy investors who made a ton of money in IT, are they reluctant to fund projects far away?  One reason is that they understand that the probability of success of a start-up depends on the environment into which they are born.  Silicon Valley may be expensive and very competitive but it also has a pool of talent and knowledge that is easy to tap into.  Another reason may be that human beings still find direct contact a more efficient form of communication, are more comfortable with face to face communication and are more likely to trust people they meet face to face.

Whatever the reasons, it is unlikely that, even in the service industry, we will ever really experience entropy in terms of physical location and this is even more reason to invest in local human capital.


Fred Thompson said...

I have friends (academics of course) who live in or near Bend and commute South -- CA, AZ, & NV. One uses his own plane. Of course, they don't pay OR income tax.

Chuck Sheketoff said...

An academic with own plane. Interesting.