Chapter One
Introduction The new "information economy" seems toevoke a contradictory debate on regions and decentralization.On the one hand, technologistssuch as Nicholas Negroponte believe that localregions are disappearing as important entitiesin the face of the "spaceless" technology of informationexchange. On the other hand, futuristslike Alvin Toffler and his political disciples,such as Newt Gingrich, have argued that themicrochip is the midwife of regional rebirth andthe death knell for central political decision-making.
How do we explain this contradiction?
The Internet has emerged as the focus formuch of the strongest hype and substance in debateson this new economy. It has become thedefining economic event of the end of the twentiethcentury-a fact reflected by the obsessivemedia attention and by the raw economic explosionof companies associated with it.
The Internet is seen as the metaphor for, eventhe embodiment of, the new information age,of a postindustrial economy, and of a new paradigm in workplace and company organization. According to this view, informationrather than raw materials has become the substance of commerce andthe Internet is the highway of the new era.
Most strikingly, the Internet is seen as the herald of the globalization of theeconomy and the triumph of a deregulated marketplace. In this vision, theeconomics of place have given way to telecommuting, global production, andjust-in-time delivery of goods and information from all points on the globe.In such a world, economic regions become an oxymoron as the economy becomesa matter of bits and e-mail in cyberspace, not transit and meetings inlocal space. The "Third Wave" in this scenario leaves economic regions as thearchaic leftovers of the industrial age. Governments, those stalwart institutionstied to such geography, become impotent and unimportant in this new globalinformation society.
Now, there are truths in each of these ideas, but the truths obscure theunderlying reality of transformation rather than decline in both the vibrancyof local economic activity and the importance of government action. On theface of it, it is nonsensical to argue that new information technologies such asthe Internet show the irrelevancy of national governments and economies.The Internet is one of the crowning achievements of central government inthe past few decades-planned over decades, funded by a series of federalagencies, and overseen by a national network of experts. And its success is notmerely an exemplar of technical achievement; it is also an example of theefficiency of government planning over purely private economic development.Almost all analysts admit that in the absence of the Internet's open standards,which were developed and promoted by the federal government, the privatevision of toll-road information services promoted by industry would not havecreated the surge of explosive economic innovation that we are currentlyseeing in connection to the Internet. It is only with the success of the Internet(and the profits to be made) that industry is now decrying the interference ofgovernment in information markets.
The most striking counter to the vision of global placelessness is the veryexistence of Silicon Valley, the region most closely associated with the rise ofthe Internet. If any region were to collapse on the wave of cybercommunication,it would be Northern California's "hot-wired" Silicon Valley. Contraryto what some might expect, Silicon Valley not only survived but thrived andexpanded its role as the geographic focus of a supposedly geography-free revolutionin the 1990s. From network router companies such as Cisco to Web-toolmakers among the dot-coms to the multimedia upstarts of San Francisco's"multimedia gulch," companies in Northern California seem to be refusing tolet geography die its proper death. While the dot-com meltdown raises theissue of the long-term role of the region, it is clear that in the short term, theInternet and regional strength went hand in hand.
But at a deeper level, the vibrancy of Silicon Valley's regional economy doesnot defy the Internet's globalizing trends; rather, its regional strength was inmany ways the precondition for the triumph of the Internet. Such a fundamentaltechnological innovation as the Internet requires more than the introductionof new products; it requires transformations in an array of mutuallysupporting institutions, goods, services, and standards, which must all advancetogether. While this process can take place between people and companies indifferent places, the organic trust and interaction of those living in the sameregion has always been a key factor in such broad-based technological advancement,whether in the car industry in Detroit or in the financial districtof Wall Street.
As economic theorists dating back to Alfred Marshall have noted, regional"industrial districts" have always been a breeding ground for specialized innovationwhere day-to-day activity supports the trust and human interactionneeded for such codependent innovation. If anything, the intense technologicaldetails needed in high technology and the conditions of rapid technologicalchange that we live under only accentuate the need for ongoing local interaction,and Silicon Valley has just emerged as the premier space for innovationin networking technology.
Silicon Valley itself is largely the creature of federal spending and effort; itspioneering firms, among them Hewlett-Packard and Varian, grew as a resultof defense contracts entered into during World War II and its aftermath, contractsthat pumped billions of dollars into the Bay Area economy. This occurredjust as federal research dollars were pouring into the region via theUniversity of California at Berkeley, Stanford University, and government laboratoriessuch as the Ames Research Center, run by the National Aeronauticsand Space Administration (NASA). The Internet itself was a project directedfor a quarter of a century by federal government agencies largely in associationwith regionally based university computer science departments.
Yet despite what might be seen as the continuity from the past in the roleof both regions and government in advancing technology and its associatedeconomic benefits, there is a justified sense that something has radicallychanged in the economy. While Silicon Valley designers may cluster togetherat Palo Alto bars, production of the computer components powering theirtools has scattered to factories throughout the world. Industry is using the newtechnology to extend itself globally as production becomes a global process.Business-to-business interactions are in turn reshaped as the cost of communicationat large distances drops to virtually zero. The Internet promises a globalmarketing venue reaching consumers around the world. For industries suchas software or banking in which the transfer of ideas and commitments (ratherthan physical goods) is the key, the Internet promises an even more radicalreshaping of where and how core services are distributed.
Community in regions increasingly takes the form of regional business associationsemerging like kudzu across the economic landscape. It is throughthese business-based associations, tied to local, state, and federal government,that the innovations of specific regions are harvested to leverage corporateprofits and global economic changes such as engendered by the Internet. Thishorizontal approach of business-to-business community alliances has largelysupplanted the vestiges of the vertical cross-class collaborations that had oncesomewhat tied the economic fates of rich and poor together within regions. Itis these local horizontal business linkages, supported by the federal government,that were essential to the emergence of the mutually reinforcing technologiesand institutional changes that sped the dominance of the Internet ineconomic life.
Inequality within economic regions has increased, just as inequality has increasedacross the country and the globe. What is disappearing is not theimportance of geography but the singularity of a "region," of the shared economicfate of those inhabiting the same physical space. Instead, informationtechnology is being used to link the professional elites of regions within aspace of shared innovation in order to market that space to a global marketplace,even as the less skilled workers of regions find themselves locked ingeography that whipsaws wages downward through that same global competition.
The institutions that once linked investments and broad-based economicdevelopment within regions-local banks, power utilities, and the local telephonecompany-are being rapidly supplanted by global corporations competingin and fracturing local markets in favor of global niches servingdifferent economic strata within regions. This in turn has undermined theshared regional economic-development strategies tied to such institutions thathad once linked labor unions, community groups, and elite businesses in somedegree of cross-class collaboration around regional goals.
In this transformation, government is not merely the victim of a deterministictechnological trend but has been the trend's enabler by means of specificpolitical decisions. Beyond creating the Internet, the federal government promoteda program largely mislabeled "deregulation" that deliberately fracturedregional banking, utility, and telephone institutions for the benefit of nationaland global competitors. But government did not disappear in this change ofpolicy: in fact, federal regulation of telecommunications activity, crucial to thenew information age, has accelerated as a range of subsidies, interconnectionrules, and antitrust interventions have reshaped the economic map at the behestof government regulators and judges.
What has changed is the relative power of global corporations in dictatinglocal government policy and the wage levels of lower-skilled workers withinspecific regions. Technological innovation may happen overwhelmingly withinlocal venues, but because of the new technology, corporations have the abilityto quickly pick and choose new venues outside the control of local governmentand beyond the influence of grassroots activists who desperately attempt tonegotiate with these global partners. The lack of traditional regional economicanchors such as community banks and local utilities that once mediated somedegree of alliance in regional growth has left local actors with few allies forbroader integrated economic development.
With this, we see the present reality of local governments teetering on theedge of insolvency and austerity while abandoning any serious commitmentto equality. We end up with a form of local government that increasinglymarkets services to global corporations over the needs of local lower-incomecitizens while using tax breaks to lure and keep businesses in their regions.The Internet and related information technologies promote an increasinglynational and global retail market, thereby further undercutting local governmentrevenues, which are dependent on sales taxes levied on locally purchasedgoods.
For local government, the promise of the new technology to enhance democracyis increasingly giving way to a blurring of the lines between governmentfunctions and business interests as "public-private partnerships" andprivatization undermine local political control. Desperate for revenue, localgovernments have begun marketing information about their own citizens toglobal corporations, even as those same corporations use the Internet to rapidlysurvey and play off local governments against one another in bidding forcorporate location decisions. The fragmentation of utilities leads to increasinginequality in telecommunications between richer and poorer towns and betweenschools serving richer and poorer students.
There is a sad irony (and a political agenda) in calls for returning budgetarydecision-making powers to local governments, prostrate before the power ofglobal corporations to dictate local policy. That this "decentralization" agendais occurring even as federal regulators increasingly displace local governmentcontrol over banks, utilities, and telecommunications only emphasizes that theambiguity about the globalizing and decentralizing effects of the new informationeconomy are not merely technological contradictions but also politicaland ideological ones that are shaping the economic landscape.
The Focus of This Book
This book is intended to be a case study in the interactions of government,technology, and the changing role of regions in our economy, using the emergenceof the Internet in Silicon Valley as the focus. The more modest goal isto tell that history in the context of the issues raised in the previous sectionand to throw new light on the dynamics of a region and a technology toooften discussed in purely economistic or technological terms.
The more ambitious goal is to use this case study to build a broader casefor how technology, government, and regions are interacting with one anotherin this new economic era. Obviously, Silicon Valley as an early consumer aswell as producer of networking technology is a key region in understandingthese dynamics, even as its uniqueness makes it problematic for complete generalizationto other areas. The Internet is a radically unique innovation whoselessons are only partly applicable to lesser breakthroughs. Still, Silicon Valley'svery precociousness as a high-tech region makes its evolution a credible modelfor insights into the fate of other regions where technological innovation isincreasingly supplanting raw-commodity production. The dynamics in thisregion of economic inequality and the corporate undercutting of integratedregional economic development to be explored in this book will only highlightthe even more pronounced effects seen in more peripheral regions, which areeven more at the mercy of global production.
The study of the Internet and Silicon Valley illuminates the highly mediatednature of regions-mediated by the technology that shapes new industries, bythe federal investments that fuel the growth of new population sectors andnew innovations, by the shaping of new business relationships that growaround such new industries and by how global markets themselves interactheavily with core regions that produce the innovation fueling those globalmarkets.
Continues...
Excerpted from Net Lossby Nathan Newman Copyright © 2002 by Nathan Newman. Excerpted by permission.
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