By: Drona Gaddam
Drona Gaddam is a rising senior at Phillips Exeter Academy with an interest in macroeconomics. He is the founder and host of The Real Returns Show, an economics radio program that hopes to promote awareness around economic and civic systems. With this series, The Economy We’ll Inherit, Drona hopes to highlight topics relevant to the next generation entering the economy, with a particular focus on innovation and education.
In her 1997 book The Death of Distance, journalist Frances Cairncross argued that advances in communications technology would make geographic location far less important to economic life. Nearly three decades later, the idea feels even more plausible. With Zoom, online communities, digital learning, and, of late, artificial intelligence, why would a student need to relocate to a major innovation hub? If more people can reach the same information then shouldn’t opportunity become less tied to place?
The Unfulfilled Promise of the Death of Distance
In one sense, Cairncross was right. Geography matters less for communication than it once did. A student no longer needs to live near a university library to access technical knowledge, and a founder doesn’t necessarily need their whole workforce to live in the same city.
The first article in this series argued that while expanding STEM access, online learning, and AI have made innovation more visible, the other inputs required to become a successful innovator have not been equally distributed. Digital tools may help a student build innovative solutions, but that is different from living inside an environment where those ideas can become patents that fuel the creation of firms. A student in a major innovation hub is surrounded by people and institutions that make those ideas easier to act on.
In the nineties, new-business growth was spread much more evenly across the country, with 125 counties generating half of the nation’s net increase in business establishments between 1992 and 1994. From 2010 to 2014, however, that same share of growth came from only 20 counties, and those counties contained just 17% of the population. Although population and business growth likely reinforced one another in these counties, the broader pattern still points to an undeniable geographic concentration of the institutions, capital, and networks that support innovation. Concentrated innovation has not necessarily been a permanent feature, but, over time, the resources needed to turn ideas into firms have become increasingly concentrated in a few select places. The Death of Distance theory posited that digital tools would weaken this pattern, but the evidence suggests that the post-internet economy has become more geographically unequal.
Why Innovation Still Clusters
Innovation hubs depend on the economic concept of agglomeration. Agglomeration occurs when people and firms become more productive by locating near one another. A student doing research in the Bay Area is not doing so in isolation. They are more likely to be near professors commercializing research, a startup looking for technical talent, or like-minded peers. That proximity lowers the cost of the transition from research to real-world application or industry experience, and moreover creates a culture of innovation and openness to risk. Knowledge spillovers—the spread of ideas, skills, and practical guidance from one person or organization to another—help explain this further. Some information can be transmitted through articles or videos, but one can also learn a lot of informal lessons by being around others who have done similar work. A student may learn ideas from a short conversation with someone who has already built a company that they couldn’t get from hours of online research.
Lots of cities complicate this idea, however. Many have strong universities, growing populations, and lower costs of living but much less innovative output. For example, I live in Columbus, Ohio, which has The Ohio State University (OSU), and a growing technology center with major investments into innovation. From my perspective, the challenge lies in the fact that having strong institutions is not the same as agglomeration. Columbus may have the “ingredients” of innovation, but those ingredients are often disconnected. A student might work on promising research at Ohio State, but if that work does not naturally lead to a local startup internship or a founder mentor, that student may look elsewhere for opportunity.
Further, a contributing factor to the disconnection between innovation’s “ingredients” is the lack of capital concentration. Venture capital is not the only kind of business finance, but it’s especially helpful for startups that need to grow before they can reliably generate profits. In 2025, California captured roughly 60% of all U.S. venture capital, and the top three states (California, New York, and Massachusetts) accounted for nearly 75% of all dollars invested. For a founder in Columbus, the issue is not simply that money is harder to find but that risk-tolerant capital, specifically, is unavailable.
Brain drain, the movement of educated or highly skilled people away from a region, creates a cycle: people leave because the ecosystem is thinner, and the ecosystem remains thinner because people leave. A Fordham Institute survey of students at top Ohio colleges, the most prominent of which are OSU and the University of Cincinnati, found that nearly 60% of all graduates and 80% of out of state graduates intended to leave Ohio. According to the Institute, for out-of-state students especially, the state is essentially a four-year pit stop for a degree. Ohio shares the struggles of the larger Midwest and Rust-Belt region, whose talent is often attracted to the “brain-gain” West Coast and the Northeast Corridor.
The Innovation Production function
In economics, a production function explains how different inputs combine to produce an output. Economist John List maps out an education production function that treats academic achievement as an output driven by funding, teacher quality, student effort, and parental investment. Innovation can be thought of in the same way. The inputs may include raw ability, mentorship, capital, peer networks, and institutions, and the output is the application of the innovation that creates economic activity.
The first article in this series used this framework to explain why wider exposure to innovation does not automatically produce more equal innovative output. Geography is especially important because it may affect how easily other inputs combine. A dense innovation ecosystem can turn information into opportunity more easily than a place where those inputs are disconnected.
Looking Ahead
In concept, there is nothing wrong with innovation hubs. By bringing many parts of the innovation production function together, places like Silicon Valley, Boston, and New York reduce many of the frictions that inhibit innovation. But while these hubs may create unusually strong pathways into startups, capital, and mentorship, they are also expensive places to enter. Average rents in San Francisco, New York, and Boston are far above those in most of the country, and, further, the ecosystems have similar inequalities. A study using data from the U.S. Panel Study of Entrepreneurial Dynamics found that founders with greater household net worth received larger amounts of external funding.
Many cities demonstrate both the possibility and the difficulty of building new innovation hubs. Austin’s startup ecosystem, for example, was valued at more than $89 billion and attracted nearly $4 billion in venture funding in 2024, supported by institutions such as the University of Texas, major technology employers, incubators, and investor networks. St. Louis has invested more than $1 billion in the 200-acre Cortex Innovation District, which has developed into a meaningful center for research and company formation: in 2025 alone, its co-working and laboratory operator welcomed 74 new companies, while Washington University researchers produced six new investor-backed or revenue-generating startups. Madison has built commercialization programs around the University of Wisconsin and produced companies such as EnsoData, a health-care AI company created by UW–Madison alumni that has helped diagnose more than one million patients, raised over $30 million in venture funding, and built a team of more than 50 employees. At the same time, however, a recent review found that Madison’s entrepreneurship resources remain largely fragmented, showing that successful companies are not necessarily indicative of a fully connected ecosystem. These results suggest that while regional hubs can create real economic activity, their weakness lies in the fact that their networks, capital pools, and pathways from research to company formation are often less dense and self-reinforcing.
One possible solution is not to recreate an entire innovation ecosystem at home, but to build a bridge to existing capital and networks. Third Coast Foundry, a shared San Francisco space created by a group of Midwestern research universities, including the University of Chicago, gives university-founded startups a base for meeting investors, attending events, and developing relationships in the Bay Area. The model recognizes that many Midwestern universities already generate promising research and companies, but often lack equally direct access to venture capital. By connecting those startups to coastal investors without requiring them to relocate permanently, Third Coast Foundry lowers one of the geographic frictions that can prevent regional innovation from reaching the market. Whether it can deliver lasting access to coastal capital without accelerating the Midwest’s loss of promising companies remains to be seen.
Sources:
Frances Cairncross’s The Death of Distance: https://searchworks.stanford.edu/view/4567909
Economic Innovation Group Business Growth Data: https://eig.org/wp-content/uploads/2016/05/recoverygrowthreport.pdf
Agglomeration and Industry Clustering Research: https://www.nber.org/papers/w13068
Knowledge Spillovers Among Startups: https://www.nber.org/papers/w30120
2025 Venture Capital Data: https://nvca.org/2026-nvca-yearbook/
Ohio College Graduate Retention Survey: https://fordhaminstitute.org/ohio/commentary/survey-ohio-has-bittersweet-relationship-its-college-students
Education Production Function: https://econ4everyone.uchicago.edu/video/the-economics-of-education/
Founder Wealth and External Financing Research: https://www.sciencedirect.com/org/science/article/pii/S1355255416000312
Austin Startup Ecosystem Data: https://news.mccombs.utexas.edu/news/austin-best-city-to-start-a-business/
Cortex Innovation District Data: https://www.cortexstl.org/images/uploads/content/cortex_teconomy_report.pdf
Washington University Startup Data: https://medicine.washu.edu/news/washu-startups-attract-record-setting-private-sector-investment/
UW–Madison Entrepreneurship Review and EnsoData Statistics: https://news.wisc.edu/content/uploads/2024/09/EmpoweringtheWisconsinIdea-Report-Final4-Accessible-3.pdf
Third Coast Foundry Overview: https://polsky.uchicago.edu/third-coast-foundry/