The Internet: Provider or Pariah for Rural America?

With all its promise of connecting businesses and residents of even the remotest areas the country to the global economy, the Internet led most states and communities to invest resources toward the Digital Divide. Will these investments pay off? Will the Internet lead to an economic geographic revolution similar to that caused by past technological advances such as the automobile? 



Combining linguistic theory, economic theory and history, two UCLA faculty members, Edward Leamer and Michael Storper, provide their answer – probably not – in The Economic Geography of the Internet Age. They argue that the economy is increasingly dependent on relationships requiring understanding and trust, qualities developed through face-to-face contact rather than long distance conversations enabled by the Internet. 



Leamer and Storper also suggest that, while the Internet creates many forces for deagglomeration of production, it also provides “offsetting and possibly stronger tendencies toward agglomeration.” The result then will be two-fold, they argue. Geographic dispersion of low-wage jobs – increasing in number as a result of computers “dumbing down” or simplifying formerly skilled positions – will continue, modestly improving the standard of living of low-income areas. 



The Internet also allows the deagglomeration of high-skilled jobs that are standardized by the Internet and computer software applications. While manufacturing and textile jobs were relocated in earlier technological revolutions, skilled service positions now become vulnerable. An example cited in the paper is technical architectural and graphics design work can now be done in China for $3 an hour and quickly emailed back to the U.S. 



On the other hand, Leamer and Storper see clustering of related businesses continuing as well, even for information- and knowledge-based companies, creating greater economic disparities or inequities across regions. 



The authors recommend local and state economic development policies focus on maintaining an educated workforce, creating a supportive business climate, and helping their business community to “stay in the loop” of the global economy. 



The Economic Geography of the Internet Age, released last week as a working paper of the National Bureau of Economic Research, can be purchased from: http://www.nber.org