Are Smaller Metros Becoming Competitive with Big Metros?

Governor Terry McAuliffe (left) and Steve Case
Governor Terry McAuliffe (left) and Steve Case. Photo credit: Richmond Times-Dispatch

by James A. Bacon

The flight of promising startup companies from smaller cities to big ones “is beginning to change,” AOL co-founder Steve Case said yesterday during an entrepreneurship event in downtown Richmond yesterday. Regions such as Richmond can avoid losing startups to bigger metros, he told the Richmond Times-Dispatch, “if you build up the right infrastructure in terms of capital and talent.”

You can take Case’s words with a heavy helping of salt — he was on a cross-country bus tour to promote entrepreneurship and his new book, “The Third Wave,” in which he argues that the third phase of the digital revolution is integrating the internet “in seamless, pervasive and sometimes even invisible ways” throughout our lives. This third wave, he contends, will revolutionize traditional sectors such as energy, health care, education, transportation, and food.

Currently, about 75% of all venture capital deals are consummated in just three states — California, New York and Massachusetts. “That does not reflect the distribution of great entrepreneurs with great ideas,” Case said. “There are a lot of great entrepreneurs in Virginia.”

The T-D article provided little explanation of why Case thinks why smaller cities will fare better than the past, other than citing the rise of crowd-funding, which allows average investors to find and invest in small startups.

Indeed, Case’s prognostication makes quite a contrast to a post I published earlier this week, “A New Map of Economic Growth,” which suggested new business formation is becoming more concentrated in a few large cities, not less. There is a large body of economic theory to suggest that, all other things being equal, larger metropolitan regions enjoy a big competitive advantage in the Knowledge Economy over smaller ones. Both job seekers and the companies that hire them prefer doing business in larger labor markets where they have more choices.

There wasn’t enough in the T-D article to make Case sound terribly persuasive. However, Case is one shrewd guy. He built AOL into an internet powerhouse and then, seeing that his subscription-driven business model was living on borrowed time, sold out to Time Warner at an extraordinary premium.

I’d like to think that there’s a strong case to be made for a smaller-metro revival in fortune. It just can’t be divined from Case’s remarks yesterday.

However, Governor Terry McAuliffe left no doubt in his remarks what he thought the secret is — a business-friendly environment and workforce training. He said his goal is to revamp high school education to produce graduates better prepared for the 21st century economy. “My goal is when every child gets out of high school that they have a skill to match the jobs that are out there today.”

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One response to “Are Smaller Metros Becoming Competitive with Big Metros?”

  1. LarrytheG Avatar

    holy Pig Knuckles… Bacon actually put the words to the page: “My goal is when every child gets out of high school that they have a skill to match the jobs that are out there today.”

    I think Case is onto something also – and I think Mark Warner also given his entrepreneurial background.

    We need to go back to the how and why cities were formed in the first place – i.e. they were places that fostered market transactions between buyers and sellers… and the workers need to produce the goods and services demanded.

    The 20th century practice of moving manufacturing to less urban areas where cheap labor was available – was more of an anomaly that is now receding.

    in the 21st century – both workers and employers want to be where there is an abundance of the other…. 😉 because products and services are changing so quickly that static anything corporate or labor is antithetical to the way the world now works.

    Companies like GE now know that the future that is now – is getting machines to talk to each other… not just new machines…

    And Mr. Case, Warner, Kaine and McAuliffe KNOW that if Virginia and Richmond want to attract 21st century commerce, that the economic “incentives” are not cash bribes and sweetheart tax deals or other corporate cronyism as much as it is a workforce educated to 21st century standards – AS WELL AS other workers educated to 21st century standards and skills necessary to find work and reduce the numbers on entitlements and who would pock-mark urban areas with ugly poverty-stricken geography that scars that urban area as an appealing place for companies or highly educated workers.

    Too bad we don’t have Steve Case, Warner, Kaine and McAuliffe in the General Assembly to actually move the state forward instead of the current flock of feckless do-nothings who can’t or won’t deal with anything from energy policy to education to health care to voting restoration to non-violent felons.

    There’s a reason why most urban areas are where the jobs are and are “blue” and you’ll not find the likes of the folks who run the General Assembly.

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