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Ahigh fence of trees and shrubs surrounds the MindTree campus in Bangalore's aptly named office park, Global Village. Outside that leafy barrier, the streets churn with hawkers and auto rickshaws and the energy of messy urban life. Inside the wall, elegant buildings rise from manicured gardens, and peace reigns amid palm trees, glass, and cool gray stone. MindTree is one of Bangalore's many successful information technology companies, cofounded by Subroto Bagchi, who bounds around its campus in immaculate ivory sneakers and a polo shirt. Bagchi looks like a Silicon Valley mogul, speaks like a management guru, and seems equally at ease with investors from Singapore, software engineers from India's poorest regions, and even a socially awkward Harvard professor.
Bagchi's openness is reflected in the obstruction-free plan of his company's compound, which encourages employees to mingle. The entire staff gathers to eat the buffet lunch on the roof and take in the view over the sprawl of one of Asia's most productive cities. Smaller Bangalore start-ups locate in less pristine space, perhaps a cramped apartment in an older building in a crowded neighborhood. In these less formal settings, there's a computer here, a computer there, and sometimes a mattress in the corner for those who work late. But however different their office space, the shoestring start-up and the established IT enterprise share the same remarkable energy and the same focus on selling their products worldwide.
India's poor roads and weak electricity grid make life difficult for big manufacturing firms, which explains why the country seems to be leapfrogging straight from agriculture to information technology. Anyone who builds a large factory and employs unskilled workers must contend with India's powerful labor unions. The information technology business is less fettered by these constraints. There are few unions in IT, ideas don't need roads to move across continents, and every successful Internet firm can afford a backup generator.
There's still plenty of hunger in rural India today, but the software entrepreneur has joined the starving peasant and the caste-conscious Brahmin in the roster of Indian stereotypes. Ruban Phukan is one of Bangalore's Internet entrepreneurs whose path illustrates how Bangalore educates and empowers the young and talented. He grew up in Guwahati, in eastern India far from Bangalore, then went to Karnataka Regional Engineering College. In 2001, he became the fifteenth employee of Yahoo!'s Bangalore operation, where he studied rival Internet search engines. At Yahoo! he met a business partner, and Yahoo! stock options gave him enough cash to become an entrepreneur.
In 2005, he established www.bixee.com (meant to sound like big sea), an Indian job-search engine that aggregates information from different sites like monster.com. Phukan and his partner developed their software on a shoestring, then sold it to MIH Holdings, for a substantial sum (by Bangalore standards). One ranking agency claimed that Bixee had over a hundred thousand unique visitors each day in 2010. At MIH, Phukan worked to develop ibibo .com, initially a social-networking and video-sharing site that allows ordinary people to showcase their talent and Bollywood film producers to showcase their movies. He has since left MIH to develop new social media software.
In the nineteenth century, cities like Buenos Aires and Chicago were conduits across continents for beef and grain. Today, Bangalore is a conduit for ideas, an urban education hub where private firms train thousands of young Indians like Phukan. New technologies have made it easy to connect between Yahoo!'s Silicon Valley headquarters and a Bangalore subsidiary, but easy international connections haven't flattened India. Globalization has made some places, like Bangalore, far more important and successful than others. Phukan could never have become a software entrepreneur if he'd stayed in Guwahati.
More than 2,500 years before Ruban Phukan started working for Yahoo! in Bangalore, cities were gateways between cultures. Ports on the Pearl River, cities on the Silk Road, and other ancient imperial entrepôts all encouraged world travelers to meet and exchange ideas. The great dance of civilizations, in which knowledge moved from East to West and back again, has unfolded largely in cities. Bangalore is simply the latest venue for that age-old dance.
In the sixth century B.C. , Athens was hardly the intellectual center of the world. The most exciting Greek thinkers lived on the edges of the Greek diaspora in Asia Minor, where they learned from the older civilizations of the Near East. Miletus, a wool-making port in western Turkey, produced the first philosopher, Thales, and the father of European urban planning, Hippodamus, whose gridlike plans provided a model for the Romans and countless cities since then.
Athens grew by trading wine, olive oil, spices, and papyrus. The city cemented its power by leading the Greek resistance to the Persian invasions that had already ravaged places like Miletus. Just as rich, ebullient post–World War II New York attracted writers and painters from battle-scarred Europe, fifth-century- B.C . Athens pulled in the best minds of battle-scarred Asia Minor. Hippodamus came from Miletus to plan the city's harbor. Others came to tutor wealthy Athenians. This first generation of Athenian scholars then influenced their friends and students, like Pericles and Socrates. Socrates generated his own innovations and taught Plato, who taught Aristotle.
This remarkable period saw the birth not only of Western philosophy but also of drama and history, as artists and scholars from all over the Mediterranean world converged in a single spot that gave them the proximity and the freedom to share their ideas. Athens flowered because of small random events that then multiplied through urban interaction. One smart person met another and sparked a new idea. That idea inspired someone else, and all of a sudden something really important had occurred. The ultimate cause of Athenian success may seem mysterious, but the process is clear. Ideas move from person to person within dense urban spaces, and this exchange occasionally creates miracles of human creativity.
The Greeks’ knowledge was preserved and enhanced for almost a millennium in the hubs of the classical world, like Alexandria, Rome, and Milan, as well as the cities of Persia and northern India, where Alexander the Great's successors established Hellenistic states. The Roman cities of Western Europe—London, Marseilles, Trier, Tarragona—were marvels of the age that brought civilization to once savage places. Roman engineering made cities possible by delivering that great urban necessity, clean water.
But while the Roman Empire had a good long run—far longer than the British Empire or, so far, the American republic—it did decline and ultimately fell to a wave of external invaders. In the fifth century, it still seemed possible that the barbarians who conquered Rome would leave its urban areas intact. Many of them, like Theodoric, saw the advantage of cities like Ravenna. But while the Goths and Huns and Vandals and Burgundians were strong enough to smash the Roman Empire, they were not strong enough to maintain and protect its roads and infrastructure, and cities starve without well-functioning transport networks to deliver food and water.
The urban world of the Roman Empire, which had produced so much culture and technology, was replaced by rural stagnation. As cities disappeared, knowledge itself moved backward. The Roman cities prized skills, while the world of rural warriors and peasants rewarded a strong arm more than a trained mind. At the peak of Rome's power, Europe was on the world's technological frontier, a worthy competitor with the advanced societies of China and India. No such claims of European eminence could be made in the centuries after Rome fell. In the eighth century, Charlemagne, the master of Europe, connected with Hārūn ar-Rashīd, the caliph of the Islamic world. The Frank was a semi-literate warlord, while his Arab counterpart was the urbane overlord of a sophisticated civilization. In the great metropolises of Asia, urban proximity was pushing humanity forward while rural Europe stood still.
A thousand years ago, Europe had only four cities with more than fifty thousand people, one of which was the last vestige of Roman power, Constantinople. The other three—Seville, Palermo, and Córdoba—were all Islamic. The Islamic caliphates, which stretched from Persia to Portugal, created a new trading network that exchanged both goods and ideas over vast distances, and great cities emerged under the protection of powerful emirs and caliphs. Under their aegis, a renaissance began 1,200 years ago, not in Italy but in Arab cities. In these places, Greek and Indian and even Chinese knowledge passed to Islamic scholars. Eventually, these places would pass their knowledge back to the West.
In fifth-century- B.C . Athens and twentieth-century New York, independent thinkers created innovations by competing and collaborating in a free market of ideas. But in the Islamic world, rulers created intellectual connection by imperial fiat. The Abbasid caliphs established their capital in Baghdad, about fifty miles north of ancient Babylon, and they wanted to adorn the new city with physical and human marvels. They collected scholars as if they were valuable baubles and eventually massed those minds in the House of Wisdom, a sort of research institution whose first job was to import the world's knowledge and translate it into Arabic. The scholars there translated, among many other works, Hippocrates’ Aphorisms, Plato's Republic, Aristotle's Physics, the Old Testament, and the Sindhind, a compendium of Indian mathematical knowledge. At the start of the ninth century, Muhammad al-Khwārizmī drew from the Sindhind to develop algebra, which he essentially named. Al-Khwārizmī also brought Indian numerals into the Arab world. The philosopher Yaqūb al-Kindī wrote one of the first treatises on environmentalism, and made Greek philosophy compatible with Islamic theology. Medical knowledge came to Baghdad from the Persians; paper-making was brought there by Chinese prisoners of war. Over a golden six decades, a chain of brilliance made Baghdad the intellectual center of the Middle East and perhaps the world.
In the medieval era, Eastern understanding trickled westward through Europe's cities. Venice, Italy's great eastern port, served as the gateway for ideas, as well as spices, throughout the Middle Ages. When the Spanish retook Toledo in 1085, its library became accessible to Christian scholars, who translated its classics into Latin. Thirteen years later, crusaders captured Antioch and gave European translators access to its stock of Arabic medical and science texts. In the Islamic cities of Spain, the largest urban areas in Western Europe, ancient texts were rediscovered, retranslated, and transferred to Christendom. Those texts came to the new universities of Padua and Paris, where a growing body of Europeans, such as Albertus Magnus and his student Thomas Aquinas, built on Greek and Islamic philosophy.
Europe slowly became safer and more prosperous, and its cities gradually grew once again. The minds of the medieval world connected with each other as Europe urbanized anew, and the continent's rate of innovation increased. In monasteries, Benedictine monks rediscovered the advantages of intellectual proximity. They recovered classic texts and experimented with agricultural innovations, like the waterwheel. Merchants congregated in trade fairs, which had some of the advantages of urban agglomeration without the fixed and vulnerable infrastructure. Eventually urban powerhouses like Bruges and Florence emerged, growing as centers of skill and commerce, protected by forces of armed artisans or mercenaries.
Many factors help explain the rise of the West—the development of military prowess and technology through constant warfare, the painful acquisition of immunity to infectious disease through centuries of exposure, the consolidation of powerful nation-states—but the growing commercial cities of Italy, England, and the Low Countries did more than their share. The growth of cities run by merchants was considerably greater than the growth of cities led by princes and monarchs. These dense places were havens for innovation and were the nodes of a global trading network that brought in the knowledge of the East. The commercial cities developed the legal rules regarding private property and commerce that still guide us today; the Great Revolt that started in the trading and wool-making towns of the Low Countries established in Holland the first modern republic. Commercial cities and trading companies were directly responsible for many of the military victories—from the fall of Constantinople in 1204 to the Battle of Plassey 553 years later—that established Western Europe's hegemony over the rest of the world.
Westerners ultimately surpassed Asians in the development of originally Chinese ideas like printing and gunpowder. By the eighteenth century, Western technology and thought had come to dominate the world. Gradually, European learning started moving back east, and cities were, once again, the points through which knowledge passed.
By the middle of the nineteenth century, European military might had proven its technological superiority over most of Asia, but one nation, Japan, remained almost completely independent of European control. When American ships showed up in 1853, Japan agreed to open itself to trade with outsiders, but still more or less on its own terms, and within forty years, Japan had thoroughly mastered Western ways and become a formidable power on the world stage. Between 1894 and 1910, the Japanese beat up the Chinese, just like a European colonial power, defeated Russia, and conquered Korea. By the middle of the twentieth century, the Japanese were building ships and airplanes as good as, and sometimes better than, their American counterparts. How could the Japanese catch up to the West so fast?
One answer to this question lies in a city: Nagasaki. The first contacts between Japan and the West took place there in 1543, when Portuguese ships landed on the nearby island of Tanegashima. Over the next three hundred years, Nagasaki would be the conduit for all Western technology coming into Japan. The xenophobic Japanese policy of concentrating foreigners in one spot made it easy for Japanese to seek out Western learning. In 1590, Portuguese Jesuits set up East Asia's first metal printing press in Nagasaki. Forty-six years later, the Jesuits were kicked out for their political meddling and religious proselytizing and were replaced by the Dutch East India Company, which would never let such matters get in the way of a profitable trading opportunity.
But the Dutch would soon give their hosts more than mere commerce. Western medicine entered Japan in the 1640s, as high officials and even the shogun himself sought care from the East India Company's resident physician. Soon Japanese students were being trained and certified in Nagasaki, bringing European medical techniques to Japan. By the start of the nineteenth century, a Japanese doctor would perform the world's first surgery under general anesthesia. The operation, a mastectomy, followed European procedures except that the doctor used a mixture of Eastern herbs to produce unconsciousness. By combining Eastern and Western knowledge, the Japanese had pulled ahead in medicine, and it would take forty years for Europeans to catch up.
In addition to Western medicine, the Dutch brought the Japanese telescopes, barometers, camera obscuras, magic lanterns, and even sunglasses through Nagasaki. In 1720, an inquisitive shogun started allowing Western books in Japan; his interest in the West also led to “the gradual emergence of Edo [now Tokyo] as a new focus of Dutch Studies.” When the American gunboats showed up in 1853, the Japanese could quickly catch up to their new adversaries because they had many engineers trained in the “Dutch Studies.” In 1855, the Dutch gave the Japanese their first steamship, which would reside at the new Nagasaki Naval Training Station. As the Japanese started aggressively copying European military techniques, Nagasaki continued to be the port of entry for knowledge as well as goods. That military and technological know-how enabled Japan, within a hundred years, to conquer much of Asia and surprise the American Navy at Pearl Harbor.
From classical Athens to eighth-century Baghdad to Nagasaki, cities have always been the most effective way to transfer knowledge between civilizations. This isn't mere happenstance. Urban proximity enables cross-cultural connection by reducing the curse of communicating complexity, the fact that the possibility of a garbled message increases with the amount of information that is being transferred. It's easy to get across a simple yes or no but much harder to teach someone astrophysics—or economic theory, for that matter.
Cross-cultural communications are always complicated; things are always lost in translation. New ideas from different continents can be so unlike our current knowledge that we need to make huge intellectual leaps, which invariably means that we need plenty of coaching. We may understand the context of ideas in our society, but we are often adrift when confronted with thoughts that came from a totally different society, like the translators of the Sindhind, who didn't understand the Euclidean math that lay behind it.
Cities, and the face-to-face interactions that they engender, are tools for reducing the complex-communication curse. Long hours spent one-on-one enable listeners to make sure that they get it right. It's easy to mistakenly offend someone from a different culture, but a warm smile can smooth conflicts that could otherwise turn into flaming e-mails. Cities like Nagasaki, Baghdad, or Bangalore, which specialize in international connection, develop communications experts who become adept at importing information. Such cities are convenient spots for foreigners to sample a host society's science, art, and commerce, and vice versa.
The success of places like Bangalore is not only about international intellectual connections. These cities create a virtuous cycle in which employers are attracted by the large pool of potential employees and workers are drawn by the abundance of potential employers. So firms come to Bangalore for the engineers, and engineers come for the firms. Urban scale also makes it easier for workers to move from job to job. In highly entrepreneurial industries, workers get ahead by hopping from firm to firm. Young people become more productive and better paid as they switch employers and acquire new skills. An abundance of local employers also provides implicit insurance against the failure of any particular start-up. In Bangalore, there'll always be another software company. Moreover, dense concentrations of entrepreneurial talent encourage the growth of related industries, like the venture capitalists who work near Silicon Valley.
The forces that compel concentration in a single city are clear, but it isn't obvious why any particular city should emerge as a hub of information transfer. Why did Bangalore, out of all Indian cities, achieve this status? Bangalore does have a relatively benign climate—drier than Mumbai and much less oppressive than Delhi. But skills, not geography, are the source of Bangalore's strength. An initial kernel of engineering expertise attracted companies like Infosys, and a virtuous circle was born, wherein smart firms and smart workers flock to Bangalore to be near each other.
Few have gotten more out of Bangalorean proximity than the city's three Infosys billionaires. Infosys was founded in 1981 and moved to Bangalore in 1983. In the summer of 2008, the company had close to a hundred thousand employees, and its market capitalization exceeded $30 billion. Today Infosys is a flat-world phenomenon, with vast operations in software, banking services, and consulting. In essence, Infosys is selling intelligence—whether provided by humans or machines—at lightning speed around the world, and it takes its employees’ skills seriously, educating thousands of people each year in its training center in Mysore. Fewer than 2 percent of Infosys's job applicants get a place in that training center, making it far more competitive than any Ivy League school.
Narayana Murthy, one of the Infosys founders, received engineering degrees from the University of Mysore and the Indian Institute of Technology at Kanpur. But Murthy may have picked up his most valuable skills in the 1970s at Patni Computers. Patni was a bridge company, an early connector between the United States and India, whose Indian founders had lived in America. They saw the opportunities for Indian software and set up a back office in Pune. Murthy worked there with the six other founders of Infosys, where they learned how to link Indian talent with American markets.
In 1981, they left Patni to found their own company selling software to foreign clients. Murthy borrowed $250 from his wife to cover expenses. In 1982, they acquired their first American client, a software company. In 1983, they moved to Bangalore to provide software for a German spark plug producer that had located there back in 1954 and wanted Infosys close by so that information could flow readily between the two companies. Infosys was also attracted to Bangalore because it was near top-notch engineering schools.
Over the past twenty-five years, Infosys has opened offices in the United States, Canada, Latin America, and Europe, but it remains rooted in Bangalore. The rise of Infosys may seem to suggest that distance is dead, but it can just as easily be interpreted as evidence that proximity matters as much as ever. By concentrating so much talent in one place, Bangalore makes it easier for outsiders, whether from St. Louis or Shanghai, to do business with Indian entrepreneurs. Bangalore may be luckier than any other Indian city, but only because it made its luck. Its current abundance of engineers reflects decisions made long ago by its leaders, the maharajas of Mysore and their ministers. Mysore had a long tradition of embracing new technologies. In the eighteenth century, its sultan dealt the British a fearsome defeat with the help of imported cannons, manned by imported sailors. Throughout the Raj, Mysore stood out among the princely states for its competence, but the savviest of its leaders was Sir Mokshagundam Visvesvaraya, or Sir MV, the state's prime minister during the early twentieth century.
Sir MV was born about thirty-five miles from Bangalore and came to the city for high school. After an illustrious career as a civil engineer, he returned to Bangalore and in 1908 became the prime minister of Mysore. Along with the maharaja, who was both fabulously wealthy and remarkably progressive, Sir MV pushed through a sweeping modernization program, including dams, hydroelectricity, steel mills, and, most important, schools. Sir MV's motto was “Industrialize or perish,” but instead of just pushing big construction projects, he emphasized the education needed to build projects efficiently. Infrastructure eventually becomes obsolete, but education perpetuates itself as one smart generation teaches the next.
In the United States and Europe, industrialization rarely encouraged education. Much of factories’ appeal for owners and workers alike was that they gave jobs to unskilled labor, not skilled artisans. But for Sir MV, industrialization meant training the engineers who could import technology from the West, just as he had done. He founded both the University of Mysore and Bangalore's engineering college, which now bears his name. Those schools first generated a cluster of engineers that persists to this day.
By the middle of the twentieth century, Mysore was fully industrialized. Its probusiness government brought Hindustan Aeronautics Limited, Hindustan Machine Tools, Bharat Heavy Electricals, and Indian Telephone Industries to Bangalore. It also attracted the German spark plug producer that would later bring Infosys there. Those early companies were important not because Bangalore's future lay with heavy industry (it did not), but because they nurtured that cluster of engineers. Starting in 1976, Bangalore also paved (sometimes literally) the path to IT dominance by launching an extensive program to improve roads, electricity, and other utilities that would attract international IT firms.
Human capital, far more than physical infrastructure, explains which cities succeed. Typically, in the United States, the share of the population with a college degree is used to estimate the skill level of a place. Admittedly, this yardstick is imperfect at the individual level. Using a college degree as a measure would classify Bill Gates, surely among the world's most skilled people, as unskilled. But despite its coarseness, no other measure does better in explaining recent urban prosperity. A 10 percent increase in the percentage of an area's adult population with a BA in 1980 predicts 6 percent more income growth between 1980 and 2000. As the share of the population with college degrees increases by 10 percent, per capita gross metropolitan product rises by 22 percent.
People have flocked to skilled areas because of higher incomes, and education in 1970 does an impressive job of explaining which of America's older, colder cities have managed to successfully reinvent themselves. Between 1970 and 2000, the population of counties where more than 10 percent of the adult population had college degrees grew by 72 percent while the population of those areas where fewer than 5 percent of people had college degrees grew by 37 percent.
We live in an age of expertise, when earnings and knowledge are closely linked. For each worker, an extra year of schooling typically leads to about 8 percent higher earnings. On average, an extra year of schooling for a country's entire population is associated with a more than 30 percent increase in per capita gross domestic product. The striking correlation between education and a country's GDP may reflect what economists call human capital externalities, a term for the idea that people become more productive when they work around other skilled people. When a country gets more educated, people experience both the direct effect of their own extra learning plus the benefits that come from everyone around them being more skilled.
The connection between urban skills and urban productivity has grown steadily stronger throughout the developed world since the 1970s. In those days, less-skilled places that were filled with highly paid, unionized factory workers often earned more than more-skilled areas. In 1970, per capita incomes were higher in industrial areas like Cleveland and Detroit than in better-educated metropolitan areas like Boston and Minneapolis. Over the past thirty years, however, the less-skilled manufacturing cities have faltered while the more-skilled idea-producing cities have thrived. In 1980, men with four years of college earned about 33 percent more than high school graduates, but by the mid-1990s, that earnings gap had increased to nearly 70 percent. Over the past thirty years, American society has become more unequal, partly because the marketplace increasingly rewards people with more skills.
While no one disputes the robust increase in the value of skills, there are competing theories about why they've become more valuable. One school of thought emphasizes technological change. Some new technologies, like computers, have increased the returns for being better educated. Other new technologies, like robots in car factories, have decreased the need for unskilled labor. Not just the technologies themselves, but the rate of technological change also favors the skilled. Many studies have shown that skilled people are better at adapting to new circumstances, like the introduction of hybrid corn and computers. Like skilled people, skilled cities also seem to be better at reinventing themselves during volatile times.
A second school of thought emphasizes international trade and globalization. According to this view, declining transportation costs made it possible to outsource less-skilled labor. Detroit's carmakers once had a near-monopoly on American auto purchases, but today those companies face intense competition from Japan, Europe, and Korea, and this makes it much harder to sustain high wages for less-skilled workers.
Of course, more skilled jobs are being outsourced as well. That's one reason for Bangalore's success. Yet so far at least, skilled Americans and Europeans seem to have gotten more from the ability to work the world market than they've lost from foreign competition. The most-skilled people in the rich countries have thrived by selling their ideas to the world and by using worldwide labor to produce their inventions more cheaply. The software producers in Bangalore haven't made Silicon Valley obsolete. Instead, they've made it cheaper—and thus easier—for Silicon Valley firms to develop software.
America's greatest information technology hub is Santa Clara County, California, which most people know better as Silicon Valley. Much like Bangalore, the Valley achieved this status by making its luck with education. A century ago, when New York and Nagasaki were old, computers didn't exist, and Santa Clara County was covered in orchards and farms. This agricultural community became a world capital of high technology because Senator Leland Stanford, a railroad magnate, decided to build a university on his eight-thousand-acre horse farm.
Founding universities was, like breeding horses, a way for nineteenth-century millionaires to spend their surplus money. My University of Chicago diploma displays, in appropriately gilt letters, the name of the school's Gilded Age founder, John D. Rockefeller. But while Rockefeller envisioned a Baptist college and hired a classicist as president, Leland Stanford opened Stanford declaring that “ life is, above all, practical; that you are here to fit yourselves for a useful career.” He wanted leaders who were committed to the real world, to developing the American West, and to spreading useful knowledge.
Stanford University's first major high-tech start-up had its roots in the unschooled genius of Francis McCarty, the son of Senator Stanford's head coachman. McCarty left school at twelve to work as an apprentice electrician. In 1904, at the age of sixteen, he had crafted a “spark telephone” that could send a voice seven miles over water. McCarty wasn't the first to send words by wireless, but he was close, and his brilliance brought financial backing. Tragically, in 1906, McCarty died in a traffic accident, smashing his head against a telephone pole. He wasn't even eighteen.
But his backers hadn't lost their appetite for radio, and they asked a Stanford engineering professor to recommend a suitable replacement for McCarty. He pointed them to Cyril Elwell, a bright Stanford student who had written his dissertation on electric smelting. Elwell proved an inspired choice. He worked for a year on McCarty's design and concluded that it couldn't provide reliable wireless service. But instead of giving up, Elwell opted for an even newer technology: Valdemar Poulsen's arc transmitter. Elwell sailed to Copenhagen and came back to Palo Alto with a Poulsen transmitter. With financial backing from the president of Stanford, Elwell then set up the Poulsen Wireless Telephone and Telegraph company, soon renamed the Federal Telegraph Corporation.
FTC was the pioneer firm of Silicon Valley's radio industry, attracting talent and producing spin-offs. Lee De Forest, the inventor of the audion transmitter, came to FTC in 1910 when his own company went bankrupt. There he developed the first vacuum tube, a critical part of radio technology until 1947, when another product of Palo Alto, William B. Shockley, led the group that invented its replacement, the transistor. Even after De Forest left, FTC thrived with navy contracts and access to Stanford's talented students. Stanford's first PhD in electrical engineering was awarded on the basis of work done at FTC.
Like later Silicon Valley firms, FTC produced distinguished progeny. Two Danes who had come to Palo Alto to help with Poulsen's arc transmitter left to form Magnavox. Another FTC employee invented the first metal detector and started Fisher Research Laboratories. Litton Industries, which grew large by producing vacuum tubes for the military during World War II, was yet another FTC offspring.
But no FTC employee did more to make Silicon Valley what it is today than Frederick Terman, who connected with the company as a kid and worked there during his college summers. His father was a Stanford professor who specialized in gifted children like his own son. The elder Terman became famous for developing the Stanford-Binet IQ test. The younger Terman went to Palo Alto High and Stanford, then headed east to get his doctorate in electrical engineering at MIT in 1924. He became a Stanford institution, serving for forty years as professor, dean of engineering, and provost, but his greatest gift was turning Palo Alto into the center of the computer industry.
One advantage enjoyed by a university surrounded by orchards is an abundance of available land, and Terman got the idea to start an industrial park right next to Stanford. His vision, which would inspire technology-intensive clusters in Bangalore and throughout the world, was to create an area packed with technology businesses. His students David Packard and William Hewlett were two early tenants in Terman's industrial park, but he couldn't achieve critical mass relying solely on his own protégés. He sought tenants like Lockheed, General Electric, and Westinghouse. Most important, he convinced the new Shockley Semiconductor Laboratory to come to the valley.
William Shockley was already a legend in the mid-1950s. Like Terman, his father had taught at Stanford. The young Shockley actually did poorly on an IQ test given by Terman's father, which says something about the fallibility of IQ tests. Shockley was educated at MIT and then worked at Bell Labs in New Jersey. After earning a medal for his wartime work using technology to fight U-boats, Shockley was put in charge of Bell Labs’ new solid-state physics research group. This group collectively invented the transistor, and in 1956, Shockley and two of his co-workers shared the Nobel Prize in Physics.
By that time, Shockley had left Bell Labs and headed out to California, where his enormous abilities—and a fatal flaw—would both assert themselves and both contribute to the success of Silicon Valley. Like Pericles and the Abbasid caliphs, he had a rare talent for attracting geniuses. In his first years, he searched America's campuses and brought great young minds eager to come to Silicon Valley and work with the Nobel laureate. But Shockley was a capricious and dictatorial manager who couldn't keep the talent that he had attracted. In one notorious incident, he made his workers take lie detector tests in order to establish who was responsible for a secretary's cutting her hand on a pin. By attracting and then repelling genius, Shockley both brought talented people to Silicon Valley and ensured that they would be starting their own firms instead of just working for him.
At one point, eight of his best young scientists collectively quit. A camera-making magnate named Sherman Fairchild bankrolled them, and Fairchild Semiconductor was born. The firm stayed in Silicon Valley. Why would the “traitorous eight” want to leave a paradise packed with Terman-trained engineers? In 1959, Fairchild Semiconductor patented the first integrated circuit. Eventually, the talent also tired of Fairchild's management. Two of them left Fairchild in 1968 to form Intel. Another left to form the venture capital giant Kleiner Perkins, which would bankroll many of the Valley's next wave of innovators.
The Fairchildren gave the Valley a new set of entrepreneurs, and others soon joined them. Many of the companies formed near Stanford focused on hardware, including Intel, Cisco, and Sun Microsystems. Two former Hewlett-Packard employees, both members of Silicon Valley's Homebrew Computer Club, mixed hardware and software innovations when they started Apple Computer. A former Apple employee started eBay in the 1990s, when Silicon Valley also became the place for pioneering the Internet. Both Yahoo! and Google were formed by Stanford graduates not far from their alma mater.
In some ways, Silicon Valley is like a well-functioning traditional city. It attracts brilliant people and then connects them. Walker's Wagon Wheel played a legendary role as a place where smart entrepreneurs shared ideas with one another outside the confines of their various day jobs. Silicon Valley's concentration is also a response to the curse of communicating complexity; all that cutting-edge technology can be pretty complicated, and geographic proximity helps the flow of information. Like all of today's successful cities, its strength lies in its human capital, which is nurtured by Stanford University and attracted by economic opportunity and a pleasant climate.
Yet in some ways Silicon Valley looks completely different from any older city. It is built almost entirely around the car. While there are some areas, particularly in downtown Palo Alto, where you can walk a few pleasant blocks to get an ice cream or buy a book, feet are generally useless for getting from one company to another. A few companies, like Google, run their own bus services, but public transportation is minimal. Only 3.7 percent of the people living in Santa Clara County take mass transit to work. Car-based living goes together with low density levels. There are only about 2.14 people per acre living in Santa Clara County. There is a lot of action in the Valley, but you have to drive a ways to find it.
Santa Clara County's economy makes little room for poorer, less skilled people. Even after the housing bust, the median housing price in the San Jose metropolitan areas remains over $550,000, making it very hard for someone who isn't a successful computer person to buy a home. Some of the most attractive areas in the Valley have completely priced out less skilled people and the businesses that employ them. Only 22.2 percent of Palo Alto's residents over the age of twenty-five lack a college degree.
The Valley's other major drawback is that it's a one-industry town; over half the county's payroll in its export-related sectors, such as manufacturing, information, and even wholesaling, appears to come from computer-related firms. Traditionally, single-industry cities, like Detroit and Manchester, haven't done well in the long run because their industrial monocultures discourage the growth of new ideas and companies. Jane Jacobs explained this phenomenon by pointing out that new ideas are formed by combining old ideas. Even in information technology, some of the most successful entrepreneurs of the last thirty years have been hybrids, merging ideas from multiple industries. Michael Bloomberg created his enormously successful IT company by knowing exactly what Wall Street traders wanted to know and how technology could help them. Facebook started on a college campus, and its founders knew what kind of information undergraduates wanted to share. Proximity to customers or related industries provides valuable information that can be a wellspring of innovation.
When eBay wanted to expand its customer base, it had to reach outside Silicon Valley in order to find a CEO, Meg Whitman, who had amassed experience selling to the American public at Procter & Gamble, Stride Rite, Walt Disney, and Hasbro. Can the Valley's software experts continue to offset their isolation from the rest of American industry by occasionally importing smart, experienced outsiders? The Valley was a great place to develop faster and faster semiconductors, but it might not be the best place to connect technology with other businesses.
But perhaps those connections aren't necessary. The Internet revolution was about making technology accessible for ordinary Americans, who can search the Web with Google, use e-mail, or buy and sell on eBay. Software engineers are people, too, and they can look to their families and friends—as the Facebook founders did—to understand the needs and desires of ordinary mortals.
In the long run, Silicon Valley will likely be hurt by concentrating too much on a single industry and by allowing too much space between its innovators. But despite the poor track record of single-industry cities, like Detroit, there are good reasons to be more optimistic about the Valley. Unlike Detroit, Silicon Valley is not concentrated in a few big firms, and that helps keep the area entrepreneurial. It has superb educational institutions and continues to invest in its schools and universities. It has arguably the best climate in the United States, and that will continue to attract rich, smart people, who are willing to pay some of the country's highest housing prices to live in that climate surrounded by many of the world's most innovative companies.
Silicon Valley and Bangalore remind us that electronic interactions won't make face-to-face contact obsolete. The computer industry, more than any other sector, is the place where one might expect remote communication to replace person-to-person meetings; computer companies have the best teleconferencing tools, the best Internet applications, the best means of connecting far-flung collaborators. Yet despite their ability to work at long distances, this industry has become the world's most famous example of the benefits of geographic concentration. Technology innovators who could easily connect electronically pay for some of America's most expensive real estate to reap the benefits of being able to meet in person.
A wealth of research confirms the importance of face-to-face contact. One experiment performed by two researchers at the University of Michigan challenged groups of six students to play a game in which everyone could earn money by cooperating. One set of groups met for ten minutes face-to-face to discuss strategy before playing. Another set of groups had thirty minutes for electronic interaction. The groups that met in person cooperated well and earned more money. The groups that had only connected electronically fell apart, as members put their personal gains ahead of the group's needs. This finding resonates well with many other experiments, which have shown that face-to-face contact leads to more trust, generosity, and cooperation than any other sort of interaction.
The very first experiment in social psychology was conducted by a University of Indiana psychologist who was also an avid bicyclist. He noted that “racing men” believe that “the value of a pace,” or competitor, shaves twenty to thirty seconds off the time of a mile. To rigorously test the value of human proximity, he got forty children to compete at spinning fishing reels to pull a cable. In all cases, the kids were supposed to go as fast as they could, but most of them, especially the slower ones, were much quicker when they were paired with another child. Modern statistical evidence finds that young professionals today work longer hours if they live in a metropolitan area with plenty of competitors in their own occupational niche.
Supermarket checkouts provide a particularly striking example of the power of proximity. As anyone who has been to a grocery store knows, checkout clerks differ wildly in their speed and competence. In one major chain, clerks with differing abilities are more or less randomly shuffled across shifts, which enabled two economists to look at the impact of productive peers. It turns out that the productivity of average clerks rises substantially when there is a star clerk working on their shift, and those same average clerks get worse when their shift is filled with below-average clerks.
Statistical evidence also suggests that electronic interactions and face-to-face interactions support one another; in the language of economics, they're complements rather than substitutes. Telephone calls are disproportionately made among people who are geographically close, presumably because face-to-face relationships increase the demand for talking over the phone. And when countries become more urban, they engage in more electronic communications.
Certainly some people still work alone, handling customer complaints or airline reservations, perhaps, over the phone in some spot far from any city. However, most of those jobs require less skill and accordingly pay less. In the average U.S. county with less than one person per acre, 15.8 percent of adults have college degrees. In the average county with more than two people per acre, 30.6 percent of adults have college degrees. The Internet and long-distance calling make it possible to perform basic tasks at home, but working alone makes it hard to actually accumulate the most valuable forms of human capital.
Innovations cluster in places like Silicon Valley because ideas cross corridors and streets more easily than continents and seas. Patent citations demonstrate the intellectual advantage of proximity. In 1993, three economists found that patents had a remarkable tendency to cite other patents that were geographically close. More than one fifth of all corporate patent citations were to older patents in the same metropolitan area, and more than one quarter of these citations were to patents in the same state. Correcting for the tendency of people to cite patents from the same firm, the propensity to cite patents from the same metropolitan area is about twice as likely as it should have been if citations were determined by luck. The geographic pattern becomes looser as patents age, because ideas do eventually spread across space, but even in our age of information technology, ideas are often geographically localized. More recent research continues to find that patent citations are geographically close to one another. Recent research also finds that productivity is significantly higher for firms that locate near the geographic center of inventive activity in their industry. Just as proximity speeds the flow of the most important inventions, it also enables the more mundane learning that turns neophytes into experts. More than a century ago, the great English economist Alfred Marshall described how in dense concentrations “the mysteries of the trade become no mystery but are, as it were, in the air.” Hanging around successful older engineers helps make younger engineers more successful themselves.
Data backs up Marshall's claim. Workers in big cities earn about 30 percent more than their nonurban equivalents, but people who come to urban areas don't experience higher wage gains overnight. Year-by-year, workers in cities have higher wage growth, as they accumulate the skills that make them successful. Wage growth is particularly faster in cities with more skilled workers. Two decades of extra job-market experience is associated with 10 percent more wage growth in skilled metropolitan areas than in nonmetropolitan America, but only 3 percent more wage growth in less skilled metropolitan areas.
For over a century, pundits have been predicting that new forms of communication would make urban life irrelevant. One hundred years ago, the telephone was supposed to make cities unnecessary. That didn't happen. More recently, faxes, e-mail, and videoconferencing were all supposed to eliminate the need for face-to-face meetings, yet business travel has soared over the last twenty years. To defeat the human need for face-to-face contact, our technological marvels would need to defeat millions of years of human evolution that has made us into machines for learning from the people next to us.
Better audio and higher-definition screens have enabled videoconferences to seem more like real live encounters, but will technology ever be able to simulate the full range of sensory inputs—eye contact, olfactory cues, the warmth of a handshake—that help make live meetings work? Furthermore, much of the value of a dense work environment comes from unplanned meetings and observing the random doings of the people around you. Fancy videoconferences will never give a young assistant the ability to learn by watching the day-to-day operations of a successful mentor. Facebook is another Internet technology that makes face-to-face interactions more valuable and effective. Studies find that Facebook typically connects people who have met in person at a party or in the same class, and that Facebook is disproportionately used by people who are good at real-life conversation. Moreover, the initial idea for an Internet social network seems to have come out of a series of murky meetings between members of a real live network of smart, ambitious Harvard students.
Today, information technology is changing the world, making it more idea-intensive, better connected, and ultimately more urban. Improvements in information technology seem to have increased, rather than reduced, the value of face-to-face connections, which might be called Jevons's Complementarity Corollary. The nineteenth-century English economist William Stanley Jevons noted that more fuel-efficient steam engines didn't lead to less coal consumption. Better engines made energy use effectively less expensive, and helped move the world to an industrial era powered by coal. The term Jevons's paradox has come to refer to any situation in which efficiency improvements lead to more, not less, consumption—one reason why low-calorie cookies can lead to larger waistlines and fuel-efficient cars can end up consuming more gas. Jevons's paradox applied to information technology means that as we acquire more efficient means of transmitting information, like e-mail or Skype, we spend more, not less, time transmitting information.
One might think that better information technology would reduce the need to learn from other sources, like face-to-face meetings in cities. But Jevons's Complementarity Corollary, which follows naturally from Jevons's paradox, predicts that improvements in information technology can lead to more demand for face-to-face contact, because face time complements time spent communicating electronically. All those electronic interactions are creating a more relationship-intensive world, just as improvements in steam engines led to a more coal-intensive economy, and those relationships need both e-mail and interpersonal contact. Better connections between people create far-ranging opportunities for trade and commerce. Information technology, from the book to the Internet, has enormously increased the scope of human knowledge and consequently made it more difficult to master. Better information technology has made the world more information intensive, which in turn has made knowledge more valuable than ever, and that has increased the value of learning from other people in cities.
It takes time to see the far-reaching, systemic effects of new technologies, so it makes sense to look at the long path of history, over which increases in the ability to communicate at long distances have generally made cities more important. No modern innovation can equal the printing press in its impact on long-distance communication. The ability to put words on paper cheaply and in great quantities was a seismic shift in mankind's ability to communicate with people who weren't in the same room. Yet there is no reason to think that books hurt cities and every reason to believe that the printing press helped to create a more urban world.
The most obvious reasons that books helped cities are that printing technology was developed in cities and cities are natural centers of publishing. Gutenberg, who grew up in the first years of the fifteenth century, set out to create a printing press with the secrecy of a medieval alchemist, but a piece of machinery as bold and as expensive as a printing press could never have been created by a solitary genius. Gutenberg needed financial backers and assistants, and they were found in cities. After his breakthrough, the technology of movable-type printing soon spread from town to town, carried by itinerant merchants, and by the 1480s, Venice had become the world center of printing. Cities have an edge whenever a technology, like printing, relies on expensive forms of infrastructure, like a printing press. Large urban markets make it easier to cover the fixed costs of these new technologies, which is one reason why telephones and broadband technology, as well as printed books, became available in cities first.
The city's rich, literate population provided plenty of local demand for books, but Venice also thrived because it had a ready supply of material worth printing. The city's position at the crossroads of East and West gave it a ready supply of scholars, like the Byzantines who fled to Venice after Constantinople fell to the Ottomans in 1453 and started translating for its presses. In later centuries, New York came to dominate printing in the United States because it had access to pirated English novels coming into its port and because the city attracted a vast number of writers and artists.
But the book didn't help cities just by boosting their publishing industries. The printed word also made the world more urban in subtler, deeper ways. One direct effect of the printing press was allowing far-flung farmers to read the Bible, but indirectly the printing press helped make the world more knowledge intensive, more democratic, more commercial, and ultimately more urban. Martin Luther described the printing press as “God's highest and extremest act of grace,” because the Bible, translated into German by Luther himself, provided a source of religious authority other than Catholic tradition and played a crucial role in the Reformation: “ Between 1517 and 1520, Luther's thirty publications probably sold well over 300,000 copies. ... Altogether in the spread of religious ideas, it seems impossible to exaggerate the significance of the Press.” The Reformation, then, supported economic, political, and social changes that made commerce in cities more attractive. Max Weber famously connected Protestantism with the spirit of capitalism and the ethical values of urban merchants and artisans. Personally, I don't think that Protestantism has an inherent superiority in supporting cities, trade, or democracy, which all flourish today in many Catholic nations. Instead, I believe that the post-Reformation rise of cities, trade, and democracy reflects the value of religious competition, which meant more choice over church rules and doctrine and led to reforms, like the erosion of usury laws, that aided the rise of global commerce.
The printing press both directly and indirectly—through the Reformation—also supported revolutions that created a more republican and more urban Europe. The great Dutch revolt started in 1566 near the Flemish cloth-producing town of Steenvoorde when a Calvinist mob destroyed the statues of a local Catholic church. In 1581, using language that would be familiar to later English, American, and French revolutionaries, the Dutch declared that King Philip of Spain had acted illegally and thereby lost his right to rule Holland. This revolutionary Act of Abjuration drew on a recently published Protestant (Huguenot) tract. The Act itself was printed and widely posted throughout the Low Countries to bolster opposition to Spain. After almost seventy years of fighting, Holland became an independent republic, the most urban nation in Europe, and the center of a global trading network that would reach as far east as Nagasaki, Japan, and as far west as the island of Manhattan.
Books, the first form of information technology for the masses, did not hurt cities. Over two centuries, books helped generate revolutionary changes in religion and politics that made the world more connected, more commercial, and ultimately more urban. There is every reason to think that globalization and modern changes in technology will have the same effect.
Cities—Bangalore, San Francisco, Singapore—are the nodes that connect our increasingly globalized world. Urban areas, like Athens and Baghdad, have always played this role, but as the world becomes ever more tightly knit, cities are becoming even more important. Silicon Valley brings together native-born engineers and brilliant immigrants, including the founders of both Yahoo! and Google, then links them to other hubs of engineering excellence, like Bangalore. As America continues to represent an ever smaller share of the global market, it will rely more heavily on its urban connectors to the growing economies of India, China, and elsewhere, where the spread of knowledge makes the difference between promise and poverty.
Some places will, however, be left behind. Not every city will succeed, because not every city has been adept at adapting to the age of information, in which ideas are the ultimate creator of wealth. While some historic metropolises specialized in connections and commerce, which continue to be sources of success, other urban areas rose as vast centers for the mass production of goods. These places had their roots in the brilliant ideas of urban entrepreneurs, but they evolved into places that thrived by keeping costs down through the economies of specialization and scale. The unusual era of the industrial city is over, at least in the West, and we are left with the problems of former manufacturing giants that have been unable to reinvent themselves in the new era.