Could tech wealth be spread to revive the Rust Belt? Some wealthy folks are willing to experiment.
Steve Case, the billionaire co-founder of America Online, is ramping up his new fund to identify and help promising startups in the industrial Midwest. Called Rise of the Rest, it began with Case’s interaction with J.D. Vance, author of “Hillbilly Elegy,” the best-seller about the decline of the region and a book often cited to help explain the rise of Trumpism.
The fund has a relatively modest $150 million, but that may only be a start. According to the New York Times, Case has assembled many of the richest people in America, including Jeff Bezos and Howard Schultz, as well as the Kochs, the Waltons, Eric Schmidt of Google parent Alphabet, and venture capitalist John Doerr.
“The fund, said Mr. Vance, was meant to construct an ecosystem like the one in Silicon Valley that will provide support and connections to entrepreneurs in small towns,” the New York Times reported. “Mr. Case and Mr. Vance hope to seed investments in start-ups in underserved cities and then bring in some of their big names to invest even more money in them. ‘We’ll be curating interesting companies,’ Mr. Case said.”
It sounds like a worthy idea, but some caution is in order.
First, not least because of the monopoly-seeking and financial plays that include many of Case’s Who’s Who list, American startups have been declining at a dramatic rate in recent decades. The merger mania that began in the 1980s also devastated the corporate and banking ecosystems of most American cities and towns, further hurting new business formation. Promising startups tend to reach adolescence only to be bought by a coastal giant.
Second, as I’ve written before, Silicon Valley is sui generis. It can’t be cloned elsewhere. All of its assets and critical mass, and the way they work together, allow it to continue prospering despite extremely high costs. Then there are other centers at the commanding heights of the tech economy — where the talent, innovations and executive decisions are made. Among them: San Francisco, Boston, New York City, Seattle, North Carolina’s Research Triangle Park and Austin. These receive the vast majority of U.S. venture capital.
Pittsburgh, for example, has top-notch universities, including world-class Carnegie Mellon. It’s a beautiful city with great urban bones. The rap on Pittsburgh has been that it can’t keep the young talent that its universities produce. The same is true for cities throughout the Rust Belt. Many also have urban problems going back to the 1960s (although at least downtowns and some other areas, including in Detroit, are either strong already or reviving). These places are affordable — and tech companies could pay employees less, all making “flyover country” more appealing to capital. That’s the theory, at least.
I’m more skeptical about small towns. The world is not flat, as columnist Thomas Friedman posited — it’s “spikey,” as urban scholar Richard Florida put it, with sharp divides between winners and losers. The winners tend to be cities where talent can concentrate. Even if a small town built a tech “unicorn” — highly unlikely — it would decamp for a big city or be bought.
The billionaires would do better to locate more factories in “flyover country,” elevate the pay and skills of service jobs, and lobby for federal infrastructure and research (now even more unlikely because of the tax bill). Also, they should work for the wider vibrancy of the economies and corporate jewels left in Midwest cities — Cincinnati’s irreplaceable Procter & Gamble is under attack now from a vulture capitalist, a scenario that has been played out countless times since the 1980s. Tech sounds magical but it can’t fix this.
According to the New York Times, “Mr. Case was quick to say that the new enterprise should not be considered a social impact fund, which has become the hot nomenclature for investors seeking to do good…. Mr. Case said he would only succeed in changing the way investors think about the rest of the country if he can produce significant financial success stories.”
Such an outcome would be healthy for the U.S. economy — if market forces could “spread the wealth” in the tech economy. But market forces are so distorted already by giants with enormous market power, financialization of the economy, and the federal government doing the bidding of oligarchs. I’m not sure such a happy ending is possible.
Today’s Econ Haiku:
Gets half a billion dollars
There’s a deal that’s sick