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The Siren Song of Scranton

Since the Industrial Revolution, economic activity has tended to concentrate in a few ever-expanding urban hubs. But now that the COVID-19 crisis has acquainted everyone with the benefits of remote work, many of the factors that have traditionally attracted talent and capital to megacities are suddenly in flux.

MILAN – The Great Lockdown in response to COVID-19 has altered billions of people’s perception of geographic space. For weeks, social and professional interactions were mediated by digital technologies that compressed physical distance and blurred the boundaries between the digital world and the real one. This unprecedented socioeconomic experiment is likely to have lasting effects, potentially transforming many aspects of our lives, and ultimately inducing people to rethink where they want to reside. The hierarchy of urban core and periphery, predominant in the Western world since the first Industrial Revolution, could be upended.

Economists have long tried to understand what makes cities so special. Over a century ago, Alfred Marshall argued in Principles of Economics that proximity creates an ideal atmosphere for firms operating in the same industry. As he put it, there is something “in the air” that allows ideas to flow freely from one firm to another, continuously inspiring new inventions through a process of imitation and innovation. Moreover, manufacturers within the same district tend to have ready access to a large pool of skilled labor and specialized suppliers of intermediate inputs.

Of course, historically, entrepreneurs did not choose at random where to locate. Though they benefited from the proximity of peers, they also wanted to minimize their costs by locating close to the markets where their key inputs were produced or their products were sold – or somewhere in between. For his part, Marshall was thinking about Victorian-era manufacturing hubs like the Lancashire textile district in northwest England, where climatic conditions were ideal for producing cotton goods. In the United States, meatpackers clustered in Chicago, because that was the conduit through which cows and pigs were shipped from the agrarian west to the urban east.

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