Just a few years ago, Apple completed construction of its 2.8 million square foot “spaceship” headquarters in the San Francisco Bay Area. The glittering donut-shaped building cost the company around $ 5 billion to build, making it one of the most expensive buildings in the world. It was all part of Steve Jobs’ vision of a highly centralized company, where Apple employees collaborate under one roof where the company was founded. And now – record zero – Apple seems to be abandoning this vision.
Apple is now in the process of “decentralizing” its operations away from its expensive donut. The main reason for the change, according to Bloomberg, is that housing in the Bay Area has become so expensive that even the highest paid Apple employees are struggling to live there. Apple executives believe the continued insistence that employees work in the donut will hurt employee retention and recruitment. They are therefore expanding their satellite offices in locations outside the Bay Area. This will save the company money as it can pay lower wages in places where the cost of living is lower. From September, the company will also adopt a hybrid model which will allow most employees to work from home two days a week, allowing them to travel less frequently and perhaps even live further away from the donut (although most Apple employees would prefer even more flexibility).
Apple isn’t the only tech company freeing large numbers of workers from the shackles of the insane Bay Area housing market. Salesforce – which itself recently completed construction of a large, expensive building in San Francisco – has adopted a similar hybrid policy. Facebook and Twitter say their employees can be permanently removed if they wish. Shopify. Soft. Square. Coinbase. The list is lengthened increasingly.
With so many Silicon Valley companies declaring that employees no longer have to work in Silicon Valley offices, are we seeing America’s economic map being reshaped? A great specialist in economic geography does not think so.
The gravitational forces of our economic map
UC Berkeley economist Enrico Moretti may be Italian, but he’s probably thought more deeply about the economic geography of America than anyone. In 2012, he released a bestselling book, The new geography of jobs, which has become a must read in mad circles. Even President Barack Obama recommended it.
The central thesis of the book became conventional wisdom: America’s economic prosperity was increasingly concentrated in a few brain-filled places. These places have not only created jobs for tech and finance types, but they have also created jobs for bartenders, waiters, chefs, lawyers, yoga instructors, dog groomers and any other vendor. services that brains wanted to spend their money on. The employment opportunities and conveniences of these places have become like a gravitational vortex for more brains and suppliers of things brains love, which has only made the vortex stronger. Meanwhile, the brainless places were being left behind. Moretti called it “The Great Divergence”.
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Now, with remote working and satellite offices freeing up many brains to work in these places – some of which have failed to build enough homes to support all of the people sucked into their vortex – the question is whether we we are on the verge of a Grand Convergence.
Internet pioneer and venture capitalist Marc Andreessen seems to believe so. He recently declared we are witnessing “a permanent civilizational change”. It is a new era where we can separate “physical location from economic opportunity” and extend the bounty of good jobs to more of the nation.
Andreessen is brilliant, and there are signs he might be right, but many others before him have made similar predictions which have turned out to be very wrong. In the 1970s, the deputy editor of The Economist, Norman Macrae, predicted a new gadget called the personal computer would soon kill the office and lead to the “end of the urban age”. Tipsters made similar predictions in the 1990s, when the internet took off.
Yet the opposite has happened. Far from de-urbanization, the Internet revolution has pushed innovative companies and workers to come together like never before. Economists like Moretti call it agglomeration.
Economists believe that agglomeration – like the clustering of technology in the Bay Area – has historically been the result of two main forces. The first is what they call “human capital overflows” – a fancy way of saying that people get smarter and more creative when they are surrounded by other smart and creative people. Think casual conversations, or “chance interactions,” over coffee in the break room or a beer in the bar. These interactions, according to the theory, are crucial for generating great ideas, and they encourage the incubation and development of brainiac clusters. The other strength is the power to “match” opportunities. When many tech companies, workers, and investors came together in Silicon Valley, there were many more opportunities for productive marriages between them. As a result, companies that wanted to recruit, grow, or get acquired turned to places like the Bay Area.
However, working remotely might actually improve some pairing possibilities. Businesses can hire smart people anywhere in the world when they drop the requirement to be physically in a central office. Not only that, they can pay them less. Plus, killing the office can dramatically lower costs for businesses, which no longer have to pay for expensive real estate.
So, in this theory, the future of work and America’s economic geography really depends on the ability of companies to create these “human capital overflows” through computer screens or in offices in locations. cheaper.
Why Silicon Valley could survive
We are now in the world of intelligent people who look into the future with crystal balls, and Moretti’s crystal ball tells him that the new normal will look a lot like the old normal. “I don’t buy the idea that the future is completely different from the past,” he says.
Moretti believes that computer screens are still a poor substitute for face to face. Living and working close to each other, he says, allows for random brain collisions that can spark new ideas. Ideas that would not be generated on Zoom. He points to evidence that shows brainiacs are much more productive when they live and work near other brainiacs working in their field. He published a recent study, for example, which calculates the numbers on hundreds of thousands of American inventors and finds that when inventors physically move to a larger group, they produce more patents per year than before.
When you drop a brainiac in a place with other like-minded brainiacs, it looks like they are improving at their job. But do they improve so much in their work that the benefits make up for all the wasted time and lost productivity associated with commuting? Does that make up for the more expensive real estate that they and their business have to acquire because of all those high paying brains all coming together? Moretti thinks so.
Even now, with the pandemic giving remote working a boost, Moretti says the evidence suggests most companies are not seriously considering an office-less future. He has analyzed the new job postings and finds that companies do not hire as many full-time teleworkers. Yes, he finds, the number of new full-time remote jobs has tripled, but the overall percentage remains incredibly low. Before the pandemic, that accounted for about two percent of all new office jobs, and now it’s only about six to seven percent of new office jobs.
In 2020, a group of economists surveyed 22,500 American workers and managers and found evidence that remote working would “stay” – but they weren’t talking about full time remote work. The average office worker, they predicted, will work two days a week from home – as Apple now allows its employees to do. It’s a huge change. But that still means workers will have to be in the office three days a week. “If this is the case, the link between the workplace and the place of residence will remain intact,” says Moretti.
The reluctance of big, influential companies like Apple to embrace remote working wholeheartedly might explain why we haven’t seen as much exodus from California as some expected. Tech workers have definitely left San Francisco in droves, but most of them have ended up in the counties outside the Bay Area, according to a recent analysis by the University of California. The data suggests that tech workers are making a rational calculation that living near their Silicon Valley office will remain important, even in the short term.
Beyond remote working, the question arises as to whether companies in Silicon Valley will move more of their office work to cheaper locations. Moretti says they’ve been doing this for years – and, if anything, Apple has been an outlier in not doing it anymore. But Moretti believes the company’s trust – product design, research and development, and visionary business strategy – will continue to be housed in physical offices in Silicon Valley, where brains can interact with other brains. The gravitational vortex, he believes, is still spinning. And it will be centered in places like Apple’s Donut.
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