The globalization process began in the 1970s and caused some permanent economic and societal transformations in all countries. A large number of academics and practioners debate about the effects of globalization and the majority agrees that globalization has both positive and negative consequences. For example, Thomas Friedman, who is a famous American journalist, thinks that “the world is flat” and all actors have equal opportunities in the globalized world. However, there are many researchers that are not so optimistic about globalization. Richard Florida, an urban studies theorist, thinks that the world has become spiky rather than flat. There are several prospering regions that have been benefiting from globalization. Enricco Moretti, the author of the book The New Geography of Job, also thinks that nowadays some places are much more prosperous than the other places. The books that Florida and Moretti wrote provide many new concepts related to globalization. In this paper, two concepts - brain hubs and human capital externalities - will be discussed in detail. Stanley Works and Apple Company will be used as examples to explain the concepts.
Undoubtedly, globalization has had a very strong influence on the development of the countries and the cities. In the book Who’s Your City? Richard Florida writes that “the place is more important to the global economy than ever before” and “the places are growing more diverse and specialized” (Florida, 2008, p.12). Using maps he shows that there are several regions in the world, including California, Texas, Washington and a large part of the East Cost, that especially benefit from globalization. The cities in these regions were able to create unique ecosystems that help to maintain the high level of economy activity. On the contrary the rest of the world does not have so much economic power and therefore the inequality between the cities, countries and regions is growing in the interconnected world. As the result large companies prefer to operate only in “spiky” places. For example, Apple’s headquarters are located in California, but the production is mainly sourced to Shenzhen, China. The same approach was taken by the Stanley Black & Decker that used to be known as The Stanley Works. It was a very strong company, but starting from the late 1970s the company faced many economic problems, because the competitors started to outsource production to Asia. The Stanley Works tried to cut the production costs at the plants in the USA, but such approach did not work and the company had to outsource production to Asia leaving thousands of people in New Britain, Connecticut without the means for living. In total, in the USA 30 million people were separated from their jobs from 1984 to 2004 (Uchitelle, 2007, p.6). In the new society the people lost job security, but became more mobile and responsible for their lives. Whether the production facilities will return to the USA is out of the question. In 2011, at the meeting with President Barack Obama Stephen Jobs said “Those jobs aren’t coming back” in response to the President’s question why the works could not come back to the USA (Duhigg & Bradsher, 2012). Not only is the production cheaper in Shenzhen. This city provides many opportunities for the companies. There are a lot of specialists who would like to work long hours. Moreover, the products may be assembled much more quickly, because the components are produced in China or the neighboring countries (Duhigg & Bradsher, 2012).
The decision to outsource that many American companies took led to the creation of several brain hubs in the USA and China. In the USA, the brain hubs are the cities or agglomerations with strong creative economy that relies on innovations. Major Chinese cities – Shanghai, Shenzhen, and Beijing - may also be considered as the hubs, because they “combine cost advantages, high-tech skills, and entrepreneurial energy” (Florida, 2008, p. 34-36). Nevertheless, majority of the cities in China are not influenced by the globalization at all and face similar problems that the cities in the developed countries have, in particular income inequality, high levels of unemployment and crime, etc.
Richard Florida defines four kinds of places: locations that generate innovations, regions that use established innovation and creativity, mega-cities of the developing world that are disconnected from the global economy and the areas that have little population or no economic activity (Florida, 2008, p.32). Unfortunately for the majority of the countries, there are only several cities in each country that may be regarded as the brain hubs that generate innovations. The USA has the largest number of “the economic and innovative peaks”. Such cities as Pittsburg, St. Louis and Cleveland have been suffering from the economic crisis, but some cities such as San Jose, Seattle, Austin have been able to become important cities for the American and global economy (Florida, 2008, p.32).
Some innovative hubs that Enricco Moretti describes in his book The New Geography of Jobs include Silicon Valley, Seattle, New York, etc. Moretti thinks that there is a new economic landscape in the world (Moretti, 2013, p.17). For example, Seattle is a very livable city nowadays. It is the city where such giants as Boeing, Microsoft, and Amazon have their headquarters. However, before the 1970s it was an average city with many problems. Creating a brain hub in Seattle changed the city and now there are many innovative companies and startups that contribute to the city’s development. On the contrary Albuquerque, a city in which Bill Gates and his partners founded Microsoft, has been unable to develop into the brain hub similar to Seattle even though there is a strong university (Moretti, 2013, p.78). As the result, in all aspects of life Seattle is a much better city for living than Albuquerque, but in 1979 these two cities were quite similar (Moretti, 2013, p.78). Moretti states that such divergence is a widely spread process that leads to the situation when successful brain hubs become stronger, and “losers tend to lose further ground” (Moretti, 2013, p.79).
When innovative companies start to work in a new city, they stimulate employment in the other service industries. For example, Microsoft employs 40,311 people, but the company is also indirectly responsible for creating more than 100,000 jobs for service workers like taxi drivers, small business owners, etc. and 80,000 jobs for workers with college education. This multiplier effect may be observed also in the other American brain hubs including Silicon Valley in which Apple employs more than 100,000 people. (Moretti, 2013, p.82). For the cities improved employment is the driver of further economic and social development. There are good schools, low levels of crimes, active cultural life, high quality health care and high wages even for the low skilled labor. The brain hubs lead to the creation of the agglomerations or metropolitan areas in which the people live and work (Moretti, 2013, p.92).
One more concept that Moretti focuses on is the human capital externalities that arise when the level of human capital changes (Moretti, 2013, p 99). Firstly, in the brain hubs skilled and unskilled workers benefit from the increased productivity of the latter. Secondly, the new technologies are adopted much faster in all spheres of life and the quality of life becomes better. The main idea behind the concept of the human capital externalities is that in the community with high human capital there are more opportunities for creativity and innovations (Moretti, 2013, p.100). Moreover, the new types of work are created. For example, in 2000 there was a very high demand for the web administrators, IT project managers, dosimetrists, etc. (Moretti, 2013, p.100). However, there are also some negative consequences caused by the human capital externalities. Moretti writes about the Great Divergence between the U.S. states in terms of education, wealth, and employment. The talented people concentrate in the brain hubs that have high output and wealth. In turn, the other communities lack innovators, investors and high skilled people and therefore cannot benefit from the human capital externalities (Florida, 2008, p.9). What is problematic is that the towns such as New Britain, Connecticut where The Stanley Works was one of the main employers for a very long time cannot change quickly, because there is no ecosystem that is needed for the innovative companies. As the result, there was much skepticism when The Stanley Works was reducing the staff and now a lot of people live in poverty even though they have a freedom to move anywhere in the USA.
The cases of The Stanley Works and Apple and statistical facts in the books written by Florida and Moretti show that geography still matters. The world has become interconnected, but the changes in the economic geography made many cities and companies bankrupt. At the same time, the new innovative cities emerged. So-called brain hubs depend on the high skilled workers that constantly generate the new ideas. The brain hubs require a special eco-system that does not provide job security, but lets the large number of stakeholders benefit from interaction. Low-skilled workers also receive benefits in a form of higher wages, but they are unlikely to change their field of work unless they go to college or come up with the innovative idea that will receive funding from investors. Human capital externalities are the result of concentration of the large number of high skilled workers in the brain hubs. There are plenty of examples how some American cities in just 40 years became one of the best places for living. These cities have specialization and do not compete with each other. The industrial cities that used to be the leaders in the past still have not figured out the way out of the crisis caused by the relocation of production capacities overseas.
The world has not become flat and the people should think whether they are in the right place. Florida states that the “what factor” is crucial for the people, because it defines what the people would like to do and what happiness means for them (Florida, 2008, p.5). Taking into account the spiky world that can be clearly seen in the maps designed by Tim Gulden and presented in the book Who’s Your City? it is worth considering moving to the agglomerations that depend on the creative economy. At the same time, one should understand that there is a very high competition between the people and it is not that easy to make a decent living there.
References
Duhigg, C., Bradsher, K. (January 21, 2012). How the U.S. Lost Out on iPhone Work. The
New York Times. Web. Retrieved from http://www.nytimes.com/2012/01/22/
business/apple-america-and-a-squeezed-middle-class.html?_r=2&pagewanted=all
Florida, R. (2008) Who’s Your City? Basic Books. Print
Moretti, E. (2013). The New Geography of Jobs. Mariner Books. Print
Uchitelle, L. (2007). The Disposable American: Layoffs and Their Consequences. Vintage.
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