People are writing about how to revitalize flagging rural economics, so it seems a good time to share my thoughts (a bit of background – I recently moved back to Iowa after living in Washington, and lived in London for a few years before that). At the most fundamental level, the dynamic driving rural decline is the benefits of physical agglomeration. People are more productive and innovative when clustered together and this effect favors cities. Higher productivity and more innovation leads to more and better paying jobs in cities. These, in turn, draw people out of rural economies and into cities, further depressing opportunity in rural economies. This is not to say other factors don’t matter at all, but the biggest challenge for rural economies is how to thrive in a world with strong agglomeration benefits.
The best thing we could do for rural economies is to kill the link between physical proximity and agglomeration benefits by using information technology to push agglomeration benefits out of physical space and into the digital realm. My vision is a world where remote work is common (if not the norm), and where better online social networks and socializing options substitute for the invisible networks of social connection and information exchange which are currently based on physical proximity. If people everywhere can enjoy the benefits of agglomeration without the need to physically cluster together there will no longer be a need to flee the country for the city. If we succeed, not only will we bring rural economies into the virtuous cycle of agglomeration benefits, but we may even accelerate innovation and growth by connecting up the entire country into one digital city.
An Idea Ahead of it’s Time?
This is hardly a new idea. At the dawn of the internet era, it was conventional wisdom that the world was flat and the internet would spell the death of distance. It didn’t happen. Instead, the rising importance of knowledge work favored returns to agglomeration more than ever before, accelerating the clustering of knowledge workers into cities. So what went wrong?
I think we all made the classic mistake of underestimating how long it would take for us to figure out how to effectively use a new general purpose technology. I’m reminded of how it took decades for the benefits of electrification to become fully manifest. It wasn’t particularly effective to simply substitute electric motors for the old gigantic steam ones; new distributed production systems had to be invented and built. Why should it be any different for the internet?
In this post, I’ll point to three benefits of physical agglomeration, and speculate on how people can use the internet to retain these benefits without the need for physical proximity (today or in the future). What’s changed is not so much technical advance (although that has happened as well), but social innovations in how we interact with each other online. It may yet turn out that the death of distance is right, but was just ahead of its time.
Making Remote Work Work
Most obviously, pushing agglomeration benefits out of meat space and online will require making remote work work. I have some experience with working remotely. At my previous job in DC I worked remotely two days a week. Most people I socialized with worked remotely at least some of the time too. After moving back to Iowa, I continued to work remotely both at home and out of a regional field office. In my current position, I collaborate with researchers who are geographically separated.
The biggest challenge to remote work is the perception that a remote work force is not as productive as a physically present one. This may because collaboration is hobbled when workers are not physically together or because individual workers shirk when working remotely. In my experience, remote workers are quite heterogeneous but these criticisms are true of some.
Let’s take collaboration and communication first. The trouble with remote work is the increase in transaction costs to transmit information. This isn’t a problem for important information because the value of the communication exceeds transaction costs. When something important needs to be communicated, a conference call, emailed slide deck, or memo will get the job done.
The problem is instead the heap of minor communications, too small to individually exceed transaction costs but cumulatively significant. It’s the absence of spontaneously popping by a co-worker’s cubicle to ask for a clarification, advice, or simply to chat. It’s the absence of body language cues in a teleconference call. I’ve even heard people say the lack of peripheral vision and pheromones impedes communication in meetings. Collectively, these gaps in information add up; problems/opportunities are not identified as early as they could; corporate culture is harder to sustain; trust between employees is harder to build.
But I think a lot of these problems are already being solved by a combination of technological and social innovations. Things like slack substitute for “popping in to ask for a clarification.” Better video technology adds back visual cues in a teleconference. But perhaps most important are cultural adaptations. It’s been interesting to see gifs and emojis emerge as an increasingly robust substitute for body language and vocal tone. Video chatting is something we’re all getting experience with now. And there is at least one highly selective university where all student collaboration happens online.
Similarly, I think we’ll find ways to solve the problem of worker shirking. In my experience, some workers do take advantage of reduced monitoring to shirk their duties, but this tends to be because old systems of monitoring effort (like walking around and keeping an eye on people) are ill suited to remote work. In principle, it’s actually easier to monitor the work of remote workers than physical ones, since you can make a comprehensive record of their digital work (for example, by continuously recording what’s on the screen). Now, that may not end up being necessary. Maybe giving managers the option to call up a live view of their worker’s screens will suffice to prevent shirking. Or maybe a working norm will evolve where you can see your whole team all the time, muted in a ribbon at the bottom of your screen. Or something else entirely.
Thick Labor Markets
A second benefit of urban economies are thick labor markets. If you want to make a movie, you can be confident there will be a plethora of people with just the skills you need, if you live in Los Angeles. If you want to make a new digital product, there will be no shortage of qualified engineers if you locate in the Bay area. If you need the capacity to rapidly scale up manufacturing, qualified workers and managers can be found in Shenzen.
But it’s not just the presence of these workers that matters. It’s also the network of informal social connections that helps match people to the right jobs. You can ask a trusted colleague for advice on a candidate or the firm they work at. Once we can make remote work work, the biggest problem will be building a comparable system for matching remote workers to employers.
In the long run, if we succeed in pushing a lot of work online, this won’t be an issue because the same informal networks that exist in cities will exist in online communities. To some extent then, we just need to be patient. If remote work works, then there will probably be cost advantages to using it (a lower cost of living in rural economies will mean remote workers can out-compete urban ones in terms of wages). Industries most suited to remote work will lead the way, and informal professional networks will follow.
But this process can be accelerated with online services that match employers with employees, like LinkedIn or Upwork. But to really substitute for thick labor markets, we need the digital equivalent of person-to-person networking events and other mixers. Offline, it may be enough to serve drinks, put on some kind of notional speaker, and then let people socialize. But new kinds of events will be needed online. The best candidates to my mind are online games and collaborative educational workshops.
Instead of an after work mixer at the bar, there could be an after work fortnite party (or some more professionally appropriate game). We’ll have to experiment to find what works best, but I suspect a game with low cognitive burden (so you can focus on socializing) and frequent shuffling of the players would be ideal.
Instead of an educational workshop, imagine an online workshop that uses active learning pedagogy, so participants have to interact to learn the material. As with remote work, a generational shift may make existing technology much more effective in the future. The combination of better technology and the ascent of “nerd culture” means more young people today have extensive experience socializing over large online multiplayer games. At the same time, the rise of online active learning education (though nascent) means the next generation may have experience doing school work in a collaborative online environment.
Knowledge Spillovers
Most subtle of all, but perhaps most important in the long run, are the agglomeration benefits related to innovation. Density appears to promote innovation. Why?
Part of it is thick networks. Most innovation happens in teams, and if you know more people, you can put together a better team. For ideas in a very preliminary stage, big networks make it easier to find someone trustworthy to talk things over with. The same kinds of digital activities that promote professional network development could also promote innovation supporting networks.
But cities are also probably better for innovation stemming from serendipity and unexpected connections. Websites like twitter are probably the best online substitute for the unexpected connections and encounters that occur in dense cities. Though there is a strain of toxicity running through much of the site, it also houses wonderfully supportive online communities gathered around common interests.
My experience is with #EconTwitter, a collection of professors, researchers, private sector economists, students and enthusiastic amateurs. The forum genuinely facilitates the open exchange of ideas and knowledge, including much of the “hidden curriculum” that is traditionally communicated in person-to-person contact, and is not typically codified in handbooks and academic articles. I’ve met people in real life that I first encountered on twitter, and even started a research collaboration with someone I’ve never met in the real world. And I’m sure many others have had similar experiences.
I have a hunch that one reason for the advantage of physical meeting of video conference (so far) has been that their high bandwidth nature makes it easier to build trust and openness. This, in turn, gets people to let down their guard and share some of their wilder ideas. Many of these are likely to be duds but wilder ideas are also more likely to lead to major innovations.
If online norms can evolve to make people comfortable taking a risk and sharing ideas that might be bad (e.g., maybe this whole post?), then it may turn out the internet is even better at promoting fruitful connections leading to innovation, since the audience for such ideas is so potentially large. The trouble is, with the internet (especially twitter), unlike at the bar, a screenshot can make a permanent record of any bad take. There may be some technical fixes, but again I think (hope?) in the end we’ll just develop new social norms to deal with it. Part of that may be thick skin, part of it may be liberal uses of block/mute features, and part of it may be an increased threshold before we get outraged about something. Indeed, I see all three of these being hashed out online even now.
Policy Implications
To some extent, all of this is just going to take time. We need to learn to communicate as well online as we do face-to-face, and how to run organizations online. We’re on our way, but it may take a generation raised in this environment. But there are some obvious things we can do to hasten its arrival.
First off, it’s crucial to promote rural broadband and other IT infrastructure, if this policy is to get off the ground. In addition to simply laying down the cable necessary to connect rural communities, this could include low-interest loans to individuals to purchase computer equipment they would need to work remotely. Alternatively, it may turn out to be better to build small communal co-working spaces with necessary equipment and an on-site IT technician.
Second, to promote the use of remote work, it may be desirable for states and small towns to offer wage subsidies and other incentives for distant firms to hire local remote workers. This would be a micro version of the much larger tax breaks that are used today to try and lure businesses to invest locally. The argument for subsidies for remote work from the perspective of an economist is that there is a positive externality from remote work. As more firms experiment with remote work, best practices for its conduct will emerge and this knowledge will diffuse, tipping other firms to increase their use of remote workers.
Third, local universities should offer online degrees tailored to the needs of remote workers. By being online, the courses would be accessible to people who would most hope to subsequently obtain remote work. The degrees would also provide an opportunity to develop the soft skills necessary to be a successful remote worker. They could even practice collaborative team-based pedagogy, to accelerate the development of norms for online collaboration and work.
Fourth, further research on what kinds of social networks facilitate the free exchange of information and formation of social ties is needed.
Fifth and finally, we can promote online gaming and other communal digital activities. Promotion could be cultural, in that we encourage kids to join e-gaming leagues in the same way we now encourage physical sports leagues. Or it could be financial, with subsidies to these industries until they reach a level of maturity where they are a common mode of meeting new people.
There are other aspects of agglomeration economies that also warrant discussion, but for which I have little to add. Capital and finance tend to be clustered in certain geographic regions. Transport infrastructure may be another avenue worth exploring, since it will probably be desirable to continue to maintain some physical interaction. And it’s certainly true that not all industries are amenable to remote work.
I hope we can figure out a way to make it work, because as other have noted there are few other options. Industries where rural areas have comparative advantage, such as agriculture, are rare and increasing productivity means they are shedding workers. And the industries of the future appear to be ones where agglomeration matters. It’s just too powerful a force to be ignored.