Caleb Watney - America's Innovation Engine

(instrumental music) Okay. Today, I have the pleasure of speaking with Caleb Watney who is a Director of Innovation Policy at the Progressive Policy Institute, and he's written, recently written a piece at The Atlantic arguing that America's innovation engine is slowing. So, before we get into the weeds, Caleb, do you want to describe the main reasons why you think, uh, America's innovation engine is slowing? Sure. Um, yeah, America's innovation engine is of course a very broad and multivariate, (laughs) you know, uh, thing, but I was trying to focus on, uh, three particular trends that I thought were, were troubling, um, make up major impacts on America's ability to innovate. Uh, and just briefly, those are basically high skill immigration international talent flows. Uh, number two, our cutting edge university system that's really the best of the world, and three, the, uh, industrial clusters, the agglomerations that we have that, um, are sort of the geographical regions where a lot of this innovation comes from. And each of those we're sort of seeing, uh, maybe negative trends before the pandemic, but the pandemic might serve as kind of a breaking point in each of them. Hmm. Okay. So let's start out with remote work first, um, or at least the agglomeration effects first. Uh, now what is so important about the physical agglomeration effects of being in these high productivity cities? Why can't remote work make up for that? Sure. Um, yeah. So I mean, economists have, uh, you know, for, uh, hundreds of years basically been studying the effect of these close geographically, um, connected, uh, networks of entrepreneurs, innovators, um, scientists, academics, um, you know, supply chain managers. When you have all of those, uh, people in a geographical region where they're, you know, running into each other spontaneously, and they're sharing ideas, and they're having, uh, long conversations, you know, in the hallway or in their offices that they wouldn't otherwise be able to replicate, um, you know, simply online, it ends up, uh, leading to a more creativity, um, more ideas, more patents, um, and, you know, we have a lot of, uh, evidence, um, for that in the real world. Um, as you mentioned, some people are starting to counter and say, "Oh, well, you know, in the last 20 years, we've seen this huge, um, array of online communication platforms kind of pop up, and can't those replicate, um, a lot of the agglomeration effects, um, that we're, we're getting in physical environment?" And I think that's certainly true to some extent, um, but I guess the, the right comparison here isn't even necessarily, um, physical agglomeration versus digital agglomeration. Mm-hmm. Um, but right now, if you're in one of these geographical clusters, you're getting the best of both worlds. You're getting the, the best that physical agglomeration effects have to offer, plus, you know, I, I, I have tons of great conversations on Twitter. Um, and so it's really- (laughs) ... digital and physical agglomeration effects versus just digital, uh, and I think the, the difference there is still pretty large and it would be a shame to, to, to lose a lot of the high productivity, um, clusters that we currently have. Okay. Let me make the case that, uh, remote work is actually going to increase some sort of agglomeration benefit and you, you convince me that it's wrong. Okay. So, uh, first of all, it's just going to connect the entire world into this high, hyper productive, uh, city that, uh, w- we can't have in the real world not just because of the limitations of how big cities can be and who can move in there, but just because of, uh, the inevitable zoning laws that cities like San Francisco passed that artificially limit how many people can join into the innovation circus there. And, you know, now we're going to have developing countries and the talent there joining into these agglomeration benefits as well as people in rurer- rural areas in America. Why won't this massively outweigh the p- loss of physical agglomeration? Yeah. No. I think digital, you know, agglomeration, these digital networks can have huge benefits and you're exactly right that there are a lot of ways you can arbitrage both bad regulations, you know, like zoning laws, um, but also, you know, just physical distances. But again, I think, you know, the, the relevant alternative here is, is not where you're just getting physical agglomeration or just digital. You know, right now, uh, living in Washington, DC or Silicon Valley or New York, um, you can have those conversations, uh, with people from all over the world. You can even hire remotely, um, but you do also get... There's a certain kind of like cultural context that you only get by like being in person and sharing conversations. I mean, I certainly experience this in my own life. I get a lot of ideas, you know, from having conversations on Twitter, um, but it's still very different to, uh, you know, have a extended two-hour-long conversation with a friend in their office, um, you know, like making eye contact, having these sort of spontaneous ideas that it's hard to replicate even over Zoom, um, partially because I think Zoom meetings tend to be a little bit more scheduled. It's hard to have, uh, flexible time. You know, frequently, the, the best conversations that happen in the real world are ones that, uh, you know, aren't intended as right off as conversations. They just kind of spontaneously arise, you know. You start off with just sharing one thing and then it extends into a whole conversation. But, uh, there's also kind of a Zoom fatigue that you see. You know, people, especially right now in this, uh, era of remote work are having so many Zoom calls. They're, um, they don't want to stay on longer, you know, just to maybe have a conversation with, with somebody extra. Mm-hmm. And so again, I, I think, uh, yeah, it's good to recognize that these aren't completely, um, you know, contradictory or we can have both, and that's really what we're getting in the big physical agglomeration effects of today, um, which kind of gets to the point I think we need maybe a better taxonomy of what we're talking about in terms of the kinds of interactions that we think lead to innovation, um, 'cause there's kind of a spontaneity and really in-depth conversation that you can, I think, only get in physical, um, spaces. But there is a, obviously, a huge effect from having just way more people you can have access to in sort of these digital spaces. Um, so that, that's one thing I, I would like to see this conversation get into is, is rather than like, "Oh, which is better? Which is more important?" um, let's break down what are the, the kind, the specific attributes of these kinds of, um, interactions that are happening in the physical or the digital space. Hmm. That's very interesting. Yeah. You talk in The Atlantic piece about how, uh, there might be, uh, uh, aspects of remote work that advantage the businesses that are using it, but for the net, net, uh, rate of innovation is actually quite bad. I'm wondering if c- can we understand this in the context of like, um, you, you can't explicitly say that, "Listen, I just want to hang out at this coffee, uh, place or wherever in my office just in case somebody wants to help me leave this company and start another company, or maybe s- I'll find a mate or something here"? Uh, but g- getting on Zoom requires some sort of explicit, um, uh, you know, explicit c- communication of your motives that is, you, you can get away with w- without not doing in the real world. Yeah. I think that's exactly right. There's sort of, um...You know, I, I think you've seen some workplaces try to experiment this. Like what if you just left your, your camera on and it was as if you were like working next to somebody in an office? But people seem to be really uncomfortable with that. They don't seem to like it. It, yeah, it doesn't seem to just like have the same sort of easy spontaneous conversation that, that you can mimic in the real world and I'm not sure exactly why. And, and I also don't want to necessarily rule out the case it could be, you know, 30 years from now or, or maybe sooner, uh, you know, we have some sort of virtual reality technology that's really blossomed and now everybody regardless of where you're living is kind of working in these, these virtual workspaces. And if that's the case, uh, then maybe, you know, physical agglomeration effects, uh, really start to diminish in importance. Um, but I certainly don't think we're there yet. Uh, and regardless, it seems like we're kind of, uh, or there's a big experiment being taken so I'll be very curious to see kind of what are the effects of all of these, you know, big tech companies, uh, Facebook, Twitter, um, others, you know, that are- are moving to all remote work for the foreseeable future. And they- and again, I think you- you kind of pinpointed something in your earlier comment. Uh, there's both productivity within the firm that I'm sort of concerned about but in some ways you could say that that's internalized, you know, if the companies themselves are seeing lower productivity measures, lower idea generation then they should be able to internalize that themselves. Um, but the thing I'm particularly concerned about from a public policy perspective is the- the public spillovers. You know, the fact that you have fewer new firms being, uh, formed and of course, you know, Facebook doesn't internalize that cost and so they have no reason to- to consider that. Um, but as a matter of public policy, you know, we do care about new firm generation and the kind of idea spillovers that are better generated in these public externalities.