Virgil, the classical Roman poet, recounts Aeneas’s story, the Trojan hero who, after the destruction of Troy, migrated to the banks of the Tiber to found what eventually became the Roman Empire. Virgil’s poem, the Aeneid, emphasizes that Rome was founded over traditional roman values: persistence, self-denial, and obedience to the gods.
Just like Virgil used Aeneas’ migration to explain the birth of an empire, today we hear of other migrations to explain economic policy: Hewlett-Packard, Tesla, and Oracle’s recent decision to move their headquarters from Silicon Valley to Texas. An analogy that relates Virgil’s account of Troy’s destruction and the promise of a new empire by the Tiber, to California losing its economic competitiveness in benefit of Texas is not far-fetched. Just like Virgil glorified the values which built Rome, commentators glorify Texas’s economic values: low taxes, little regulation, and affordable land and labor.
In contrast, I contend that there is a different economic phenomenon at work in these firms’ decision to move. Economists have long identified talent clusters as geographical areas where creative, highly skilled individuals gather to develop new ideas, and create new firms. These clusters, where people congregate to create and innovate, benefit from a common pool of workers and input suppliers. In California, Silicon Valley is one talent cluster, but not the only one. There is Silicon Beach in Los Angeles and the BioMed cluster in San Diego. This phenomenon is called “agglomeration economies.”
In fact, during this year, California recorded almost four times as many patents as Texas. Because of the quality of research at the University of California and other higher education institutions, California has a natural advantage in developing these clusters. While higher education is the engine of these clusters, its fuel is the interactions between people. Some of them formal, some of them informal. What matters in this context is the transmission of knowledge at the local level. Hence, population density tends to be high, and the cost of land and labor is expensive.
An added natural economic process, called “industrialization economies,” refers to the process in which once a firm is established and has internalized the cluster’s benefits in its production process, they will move out of the cluster to take advantage of lower land and labor costs. I argue that HP, Oracle, and Tesla are responding to these industrialization economies. Their move reflects California’s success, instead of a “Troy in flames” portrait that has been recently painted by many.
Unfortunately, there is no need for a Trojan Horse to defeat California’s dominance in talent clusters. California’s clusters are based on our higher education institutions and creative workforce. If there is a challenge to California’s innovative supremacy is underinvestment in K-12 education, land appreciation due to Prop 13 and NIMBYsm, and to the federal government’s enhanced immigration enforcement, the stringent requirements for H1B visas and the reduction of F1 visas. A reform to immigration policy must be of first importance for the state’s delegation in Washington D.C. People fuel the creativity and innovation on our talent clusters. In fact, for a long time, California has been able to remain competitive thanks to the contributions of millions of immigrants. California has avoided the negative consequences of under-investments in education thanks to the inflow of highly skilled immigrants.
Immigrants, more than any other population, tend to settle and innovate in talent clusters. For example, estimates suggest that forty-four percent of all startups in Silicon Valley were founded by at least one immigrant. Immigrants are also more likely to register a patent, immigrant-owned patents are more likely to be cited, and these patents are even more likely to generate wealth. But while examples of immigrant entrepreneurs and innovators abound in our collective imagination, a more silent and resilient economic phenomenon is happening simultaneously. It refers to the millions of immigrants who work every day in California, some in personal or household services. Immigrants who allow their employers to concentrate on different labor market tasks. Immigrants employed in low-skilled, repetitive and, manual occupations allow natives to spend more time in the labor market. For example, high-skilled women who live in areas with more immigrants tend to spend more hours in the labor market creating, innovating and generating wealth.
I return to the ancient Mediterranean, to the mythological heroes who crossed the sea searching for a new Rome. But this story is not one about innovators washing ashore on the welcoming banks of Austin’s Colorado River, for California remains — directly or indirectly — the single most innovative and competitive economy in the world. Rather than the fall of Troy, I see California as a second Athens, as an educational and commercial center flourishing as it draws the world together. And just as other current commentators may herald Texas’ values, so we should extol the values that immigrants bring to our talent clusters: resilience, openness, entrepreneurship, and innovation.
Published in the San Bernardino Sun 01/15/2021