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Comment by eli_gottlieb | Hacker News Reader

>Especially for information technology, I don't understand the rationale why it has to be concentrated at certain places. As long as there is a good net connection, it could be anywhere in the world. Let's concentrate on the US for a moment. Why can't a successful startup not be in Dallas, Amarillo, Miami or Des Moines?

Because the real commodity being sold with the apartments and offices isn't net access or even land. It's proximity to rich people. It's not an open market economy; it's a feudal system in which you need to stick close to your patrons.

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While there's certainly some true to that statement, I think you're being overly cynical. People congregate in cities to be near _people_. For sure with a good internet connection I could do all my work from small town america living in a mcmansion at a quarter of my rent; instead I live in nyc. Access to artistic communities, robust public transit, diverse food and culture, and a fluid job market makes the value add for me a no brainer. Im sure for different people the economics don't work out so cleanly, but online I feel like discussions on rent and technology tend to gloss over the things you're actually paying for.

A successful startup isn't going to be in the cities you mentioned because you have to convince people that they find the non-work related amenities they've gone to SF, Seattle, NYC, etc to find. Or go full remote, which has its own set of challenges (though I'd posit a full remote company really isn't in any one city so it doesn't really matter where the founders live).

And that's just the employee point of view. Access to capital, to useful investors, to founder networks and to decision makers of your prospects are all important factors in where to set up shop.

We're located in Cebu, Philippines, the 2nd biggest city in the country, and our CEO spends a good deal of time in Manila, the capital, because decision makers want to meet someone. Starting there, would have been easier for many of the above mentioned aspects.

> Access to artistic communities, robust public transit, diverse food and culture, and a fluid job market makes the value add for me a no brainer.

Other than the public transit, all of the above are available in any number of towns and cities in the U.S.

A half a century ago maybe you had to go to NYC to hear great live music and eat Cambodian food, find specialty ingredients, or get access to off-beat books. But that's not the case any longer. I just googled and apparently there are Cambodian restaurants in Des Moines, Iowa. The internet can get you all the ingredients, music, and books you'll want.

Honestly, I think the coastal cities just have better marketing and more hipster appeal.

I've lived in NYC and Buffalo, a reasonably large city 8 hours north of NYC. The two experiences are not at all comparable, particularly with food and diversity in culture. Although a large Chinese population exists as international students in Buffalo, you can't get anywhere near the close-as-authentic-as-you-get-in-the-states Chinese food in Buffalo that is available in spades in NYC area(particularly Flushing,Queens). this applies equally to Indian, Ethiopian, etc. cuisine. Many particular specialties that I enjoy aren't available in Buffalo at all.

Fair enough. But I just ate arugula at a Panera. Fifty years ago Italian was considered "ethnic" food in the American Midwest. It's also worth pointing out that Flushing isn't just down the street for most new Yorkers. Commutes within NYC can be well over an hour and/or two expensive can rides away.

I'm just saying the "no culture in the flyover states" meme is long overdue for an update.

By some measures Queens is one of the most diverse places on Earth, so that's not really a fair comparison.

Not every Cambodian restaurant is the same. I promise you the best Cambodian restaurant in Des Moines is nowhere nearly as good as any half-decent Cambodian restaurant in New York. Same goes with Italian and Japanese and Spanish and Thai and Korean. Are you really equating the food scene in Des Moines with that of New York by the availability of cultural cuisines?

Not sure where to jump into this thread:

There are many good reasons the bay area is the hub of tech development. It all started with proximity to two very good computer science schools; Stanford and UC Berkeley. At this point, there are more tech-savvy investors here than anywhere else.

Ongoing development of technology is an iterative process and by necessity, must be a productive one to get to market more quickly. The VCs and the talent pool are here in the bay area. If a startup wants to get to market quickly, that startup will need money and talent, both of which are people issues.

Maybe it was related to the proximity to silicon valley which wasn't due to the computer science departments of Stanford and UC Berkeley, although Stanford did likely place a role.

I have to disagree strongly. I live in NYC for work. I actually hate living here and I don't like the people I'm around. I am desperately looking for a way out of this city but my family lives on Long Island, so it's hard to justify going to another city.

Why don't you move to Long Island and commute? If you don't like the city there are plenty of smaller towns nearby and it's cheaper too.

NYC doesn't have a monopoly on bad commutes, but isolating yourself even more with an even longer commute doesn't solve culture mismatch issues. Besides, it's not a great lifestyle anyway.

If I live near my family on Long Island it would be a 2.5 hour commute to my job each way. If I live halfway between them and my job then I'm neither close to them nor my job. So living near my job is the least bad option, and that seems to be the option most people take.

That's a very interesting and original way of looking at it.

It would also explain clustering in other areas (finance in NYC, Oil and gas in Houston etc).

Do you have any links or references exploring that idea in greater detail?

I don't mean to have this come across as snarky, at all, but really the reference for this is the whole of human history.

Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up.

The original article does present some interesting and relevant examples of countervailing forces at work as well, and is insightful. But the elephant in the room, as always, is that returns to capital and rent extraction are the primary drivers of wealth, and that the winners tend to keep winning and vice versa.

That's not snarky, and you have a point.

But even if things seem "really obvious" and we can tell "just by looking at the facts", I feel better if someone has looked at the data and shown that to be the case.

We aren't living in the feudal era, and a lot of people like to think that the reason people move to the cities is because of (for instance) bars and restaurants, museums and the opera, high-paying jobs and so on.

This proximity to wealth may be a symptom of some third factor or it may be the driving factor.

That's why I appreciate it when smart, hard-working people take their time to figure it out for me.

It takes relatively wealthy people (or at least big spenders) to make trendy upscale bars and restaurants work.

Museums, opera, symphony, most theater, etc. are kept alive by the philanthropy of the local rich.

High salaries are paid by rich VCs looking for return, or companies with more cash than they know how to handle commissioning prestige projects. (How many people at Google actually work on revenue generation? That doesn't happen at Joe's Computers in Nowheresville).

Concentrated wealth is the reason cities can have these things.

It should be noted that the vast majority of the IT industry isn't startups. Lots of the drive of rent is not funded by VCs.

I'd argue that what you're identifying as those businesses in the majority were at one time, startups themselves. Without the previous generation of concentrated wealth those businesses would not be in the position they are.

I do, however, also agree with your counter-point to the previous comment.

Prices are driven on the margins - that is the last transaction

If you've ever played city building games like Rome, Anno, The Settlers, Banished this will be familiar. They encoded the dynamic of number of people, increasing needs and critical mass well imho.

A large share of units in Boston rent to mostly college students who's parents pay the ever increasing rent. Harvard, MIT, BU, etc aren't going anywhere...

The problem is, as often in economics, defining the terms and building a model that approximates life. It's not as trivial as a sorting algorithm or a simple 1 parameter regression.

How do you define wealth concentration, for example? If your definition is flawed, you can throw out the entire model.

I suppose that is why people spend their entire academic career looking at these things.

> bars and restaurants, museums and the opera, high-paying jobs

And these would actually be rent seeking activities? Is that the idea?

That wasn't what I was thinking of.

I was just contrasting two different types of reasons for why people cluster in those cities.

Type I, the optimistic theory

Information is more efficient and trust is better when people meet in person. Industries need to co-ordinate trust and information flow through lots of people, so they have to be in the same place. They produce a lot of value, which produces wealth and increases productivity. That wealth pays for all these great things.

This causes a happy cycle of smart and educated people being attracted to the "good" things in life coming to the cities, and providing labor for the companies and so on.

Type II, the pessimistic theory

In order to get industries going (tech startups, new Oil and gas company etc) you need capital, and the capital exists in these enormous clusters. So the people who want to fund the industry has to go to these clusters of existing capital and convince them to invest them. The returns from the success of the industry go back to the same place and so on.

The existence of the bars, restaurants and museums are compatible with both, but only have causal power in the first type of theory.

It's not all that complicated. People go to where resources are.

Sometimes resources are grasslands with plentiful wild animals that you can spear and eat. Sometimes it's gems or petroleum buried underneath the rocks. And yes, resources are things like museums or pretty views or available five star restaurant meals. But the dynamic throughout human history is reasonably understandable, you can observe the same basic concept in a Petri dish.

The biggest resource of all in modern society is financial wealth. So people go to places that have it. Unlike the grassland, where new arrivals quickly deplete the available resource, in this modern scenario the result tends to be the creation of more wealth, and the cycle reinforces itself.

Is that a typo? Rent seeking refers to a specific kind of behavior

https://en.m.wikipedia.org/wiki/Rent-seeking

Exactly what I meant. Bars and museums require wealth

How is a bar owner rent seeking? They are providing a good and charging market prices for it. If bars in the city got together and introduced a bar-density limit within the city so as to limit the number of bars that can exist and thus allow them to raise prices, that would be rent seeking. If a bar hired a bunch of people to attend town hall meetings preventing new bars from opening up and allowing itself to raise prices - that would be rent-seeking.

If prices of drinks are going up naturally because people are making more money, "rent" for real estate is going up, etc. that is not "rent-seeking".

Not sure if I'm missing a sarcasm tag in your comment but most places in the US restrict the number of places selling hard alcohol by having a restricted number of liquor licenses that trade on the open market like taxi medallions. In San Francisco for a restaurant this will set you back a cool 1/4 million[1] and the type 48 license you need to open a bar seem be sold so rarely in San Francisco I can't find any price reference online.

[1]http://www.mercerrestaurantgroup.com/how-to-open-a-restauran...

A huge missing part of this discussion is Tech is not that concentrated in 'The Bay Area' people are. More people live in 'The Bay Area' than Maine, Montana, Delaware, North Dakota, South Dakota, Alaska, Vermont, and Wyoming combined.

The Bay Area plus NYC metro area are 8.5% of the total US population so yes they are a significantly larger chunk of GDP and wealth. But, they are large enough that the differences are smaller than you might think.

> Wealth is basically self-concentrating. Our political systems tend to end up with a few capital (and often Capitol) cities where the spoils from the plundering, both metaphorical and literal, end up.

Plundering, seriously? Isn't HN supposed to be a community of entrepreneurs?

Yes, seriously. Next time you're in London take a detour to the British Museum if you remain confused on the subject.

We might not be the plunderers, we might just be their tools.

Just because we believe there are people who accrue wealth by adding value doesn't mean there aren't people who do the opposite. If you recall Atlas Shrugged, James Taggart makes an awful lot of money and can't understand why Dagny still doesn't approve.

To further complicate matters, both behaviours can be exhibited by the same person.

It also provides a place with interesting signals. You could tell shale oil was going to take off when Minot ND suddenly had direct, daily flights from Houston.

The reference that I posted elsewhere in this thread is pretty thorough: http://web.stanford.edu/~diamondr/jmp_final_all_files.pdf

In industrial industries like Oil & Gas, there are also a lot of advantages to having clusters of suppliers and service industries together. When I worked in the drilling business (not in Houston but in another city fairly nearby), pretty much all the overhaul, fabrication, part suppliers, etc. were all in the general area and we could visit them to review plans, oversee tests, etc.

A good resource that is still in use today by many urban planners is a book called "The Death and Life of Great American Cities" by Jane Jacobs. She explores among other things the growth, decline and renewal of urban centers. Even though this was written in the 60's most of her ideas are still considered when city urban planners make decisions.

Remember that you have consolidation happening too!

Places like Albany, NY were regional banking centers as recently as 30 years ago. In Albany's case, that was an artifact of the city's role as a transportation hub for canals and railroads.

As the role of banking has changed and the market has consolidated from a highly distributed model, its harder and harder to do business outside of large areas. If you're a midsize business, it's hard to get lines of credit simply because nobody wants to travel to talk to you.

Even within large organizations like government and Fortune 50 companies, consolidation drives centralization. Big places used to have regional administrative services (HR, Finance, etc). You could make a career working in some regional field office.

Now, centralized functions mean that you work at HQ, a regional center, or you're a task worker in the provinces.

Are you serious? That's Students choose to attend "good schools" because of the networks and resources. Immigrants flock to the US because of our resources. Increasing your chances of prosperity is the reason why anyone moves anywhere (unless a family member is in need).

I first read about this connection in Paul Graham's essay "How to be Silicon Valley" [1]

[1]: http://www.paulgraham.com/siliconvalley.html

In my field we service the financial industry and this couldn't be more true. It's a requirement to be in physical proximity to midtown and Wall Street. However phrasing it like you do doesn't make me feel all that good :(

Don't feel bad, you have a real reason to be close by because light speed is only so fast. I remember reading recently somewhere that some firm had microwave relay systems in place so they could get data faster. High frequency trading only works with the best data!

CEOs are wealthy enough to live in the places and apparently desire to. This creates jobs in those cities and people will pay to live in them. Some people end up working remotely and live in cheaper places but not everyone has this option.

I'm pretty sure you have this backwards. The company doesn't locate itself where the CEO wants to be. The company is just located somewhere.... and the CEO will usually move to wherever that is upon hiring, unless they already live there.

you could argue it is a form of apartheid: manhattan and the san francisco peninsula are classic constrained square miles with limited access points.

The walled City of London, a separate sovereign maritime nation situated within London is another historic example...

https://www.ft.com/content/7c8f24fa-3aa5-11e4-bd08-00144feab...

That's it, although I'd say it's access to capital & advice from wealthy people.

You can code and create a product anywhere; you can meet VCs by flying into SFO (VCs might fly to you if you are extremely successful already).

I'd say that capital flows freely and advice can be given anywhere. What's hard to cultivate and maintain at a distance is friendship.

I think that capital aggregates in trade centres, where materials can be exchanged and deals can be made extremely swiftly. People closer to the trade can get information more quickly, and quickly react to it too.

Individual capital is very liquid, but the herd is not. Consider San Francisco: it has capital because of tech, because of the need for electronics & power for running a port, because of the trade in the Bay, because of the gold miners in 1849. That capital hasn't moved significantly to (say) Bakersfield.

> It's proximity to rich people.

You have to be a lot more specific. There is an immense number of rich people in Los Angeles and it has historically had a mediocre tech scene for example (especially compared to SF, but it also lags Seattle and NY currently).

It's proximity to large numbers of very specific rich people.

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