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Are Cities Dying? 147 Informational Spillovers Saxenian (1993) describes how Silicon Valley began with the students of Stan- ford Professor Frederick Terman

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Are Cities Dying? 147 Informational Spillovers Saxenian (1993) describes how Silicon Valley began with the students of Stan- ford Professor Frederick Terman. Terman supported his glittering roster of pro- tégés (including Hewlett and Packard, Charles Litton and the Varian brothers) with both ideas and finances. The area around Stanford had other advantages—like proximity to military installations that provided demand for new technology, es- pecially during World War II—but it was really the intellectual atmosphere that was special. At first, this atmosphere was mainly created by Stanford itself (Jaffe, 1989, discusses evidence on locational spillovers from university research), but eventually the firms in the area developed their own mass of ideas and expertise. The sharing of ideas across firms was accommodated both by the movement of workers across firms (the spread of former employees of Fairchild Semiconductor into other Sili- con Valley firms is now local legend) and the sharing of ideas both formal and informal settings. Indeed, since many ideas are carried by workers shifting firms, the urban advantages in moving ideas is quite close to the urban advantage in reducing mobility costs for workers, and in some senses my distinction between the two is artificial. More generally, the geographic proximity created by cities allow ideas to travel more rapidly, which is to say that cities reduce the cost of moving ideas. This idea has appealed to a variety of authors. Marshall (1890) wrote that in dense areas "the mysteries of the trade become no mystery but are, as it were, in the air ..." Jacobs (1968) and Lucas (1988) connect cities with the production of ideas which lie behind economic growth. The empirical evidence on this process is less commanding. Jaffe, Trajtenberg and Henderson (1993) present the best evidence showing that a new patent is much more likely to cite a patent that is close spatially, even controlling for firm effects. Their methodology of examining patent citations gets as close as we can get to observing the flow of ideas across space. Less direct evidence, also using cross- industry patent citations, is provided by Dumais, Ellison and Glaeser (1997) who find some support that new plants are more likely to locate near industries that are linked intellectually. Ultimately, our belief in the intellectual role of cities comes mainly from case studies and anecdotes rather than overwhelming hard evidence. Even if we accept that cities have a role as centers of intellectual flows, two empirical issues remain. First, ideal industrial environments may be either diversi- fied cities or concentrated industrial parks. Glaeser et al. (1992) examine employ- ment growth across city industries (like steel in Pittsburgh or retail trade in New York) and find that less concentrated industries in diversified areas grow more rapidly. Feldmann and Audretsch (1996) find similar results examining new prod- uct introductions. Conversely, Miracky (1992) finds little evidence for the diversity Saxenian (1993) provides a superb discussion of Silicon Valley and this paragraph draws very strongly on her work. hypothesis in a particularly widescale investigation of city-industry growth, and Hen- derson, Kuncoro and Turner (1995) argue that their investigation of firms in high technology industries shows a positive connection between concentration and later growth. A possible reconciliation of the results is that scale and concentration may have value for smaller firms; however, diversity has more value for long term growth. A second issue is whether the production of new ideas is more abundant in an environment of many small firms or a few large ones: does competition generate growth? A relatively small number of firms may be preferable if internalizing the benefits from innovations is a major priority. When many firms are borrowing ideas, then the incentive to innovate may be low. Alternatively, competition between many small firms may act as a spur for new ideas. Chinitz (1961) emphasized the impor- tance of a culture of entrepreneurship in spurring innovation at the city level. The evidence on this point is clear: there is a strong positive connection between the number of firms per worker (in a given U.S. industry) and growth in a given area (Glaeser et al., 1992; Miracky, 1995).