How tech firms can drive growth — without making inequality worse

For many cities, tech hubs have been a key to jump starting economic growth in the wake of the global financial crisis. In an era of uncertainty, tech-sector growth is proving to be a driving force for nations attempting to reach into the “next economy”. In the UK, for instance, the sector is – optimistically – predicted to grow four times faster than GDP, while tech job growth is expected to outperform all other occupation categories by 2020.

By traditional measures of a successful economy – jobs and wages – this is a welcome development. But there is a growing body of evidence which suggests that the growth of the tech sector in cities is associated with increased economic segregation. And while it’s true that, in general, large, successful, high-growth cities tend to have high rates of economic segregation, areas with tech hubs seem to experience this effect more markedly.

Broadening the benefits

Studies have found that the share of tech jobs a city has is positively associated with income inequality: so, the higher the proportion of tech employment in a city, the more unequal it is. In short, pessimistic analyses suggest that a technology-driven economy greatly favors a small group of talented and lucky individuals, while bringing little benefit to others.

This trend is being borne out in international tech hubs. Tech growth in San Francisco’s Bay Area has driven property prices to levels far out of kilter with the average local salary, and is pricing out smaller firms. Meanwhile, in London, tech growth has increased the cost of living in parts of the city. Coupled with a shortage of housing options and office space, this has led to both smaller firms and households being displaced from central areas.

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The gentrification of formerly industrial areas has been a particular issue in recent years. The introduction of permitted development rights has placed the need for new homes in direct competition with the demand for business space. But now, a new report from the Royal Town Planning Institute (RTPI) argues that this need not be the case.

The impact that tech enterprises have on a city is grounded in the choices we make as a society. The question is: as the tech industry grows, how can we increase the opportunities on offer, for the greatest number of people?

Wider opportunities

The marked growth of the tech sector and its resources – and the profitability of many tech firms – means that there is more that these businesses can to do address the challenges facing local economies where they are based. Local and national governments have an important role to play in all this. Pursuing a tech growth agenda may well lead to overall gains. But policy makers must combine this agenda with efforts to ensure that these gains are shared, if they are to address longer-term city challenges.

The RTPI report argues that cities experiencing tech sector growth, and the infrastructure challenges that go with it, cannot simply rely on existing planning and tax obligations. Instead, authorities should put together a clear city technology plan, which takes the potential for wider benefits of tech sector growth into account.

Such a plan could clearly lay out the longer-term challenges faced by the city and possible alignments that exist between tech firms’ resources and public policy challenges. Not all tech growth involves new development, and many of the potential benefits are social rather than financial in nature. And measures can be taken to secure these benefits, rather than simply hoping tech growth will naturally spillover to the local economy.

One obvious solution is to up-skill the local community. One of the biggest problems facing the tech sector is a shortage of coders and software developers. Many tech firms’ city centre locations place them close to relatively deprived communities, so why not make the local community tech literate, in order to deliver the skills tech firms need? For instance, Hackney Community College in London has started an apprenticeship scheme with local tech firms, to both grow the local skills base, and help meet the demands of the sector.

Another option is to collaborate with tech firms in urban regeneration projects. Tech firms and employees display a preference for easily accessible, walkable, multi-use districts. This provides a clear opportunity to reconfigure urban areas. In some cities, previously industrial districts are undergoing physical transformations, alongside economic ones. Well planned regeneration projects will make use of consultations to involve the views of the local community. This is a crucial part of the process, in order to avoid displacing local residents and businesses.

Finally, local governments can employ a team to engage with the sector. In order to attract and harness the growth of the tech sector, it is crucial to get a sense of what these firms want from the city. Dublin’s commissioner for startups and Amsterdam’s chief technology officer are two newly devised roles that provide interesting models in this context.

The tech sector is likely to continue growing well into the future. Yet the benefits are not always shared. But there’s huge potential for mutual economic and social support between a city and its tech sector. This potential should be nurtured into a collaborative relationship, which achieves economic growth that everyone can benefit from.

This article is republished from The Conversation by Neil Lee, Assistant Professor of Economic Geography, London School of Economics and Political Science under a Creative Commons license. Read the original article.