High-Tech Growth Shifts West

Cities that fail to attract high-technology industries risk being left behind in a new economy dominated by the Internet and industries such as telecommunications and biotechnology, a study of U.S. metropolitan areas concluded.

Areas best suited to lure new high-tech businesses, however, are those that already have them or have strong research facilities that could help nurture young companies, according to a study released Tuesday by the Milken Institute.

"High technology certainly will determine which areas of the country are succeeding. Areas without high-tech are going to be left behind," said Ross DeVol, the report's principal author. "There are still remnants of the old economy around, but the new economy is here."

Western metropolitan areas, led by San Jose, Calif., have become the strongest magnets for growth over the past two decades, the study found.

Western cities hold four of the top five positions in a study ranking 50 cities on the basis of their concentration of high-technology jobs and revenues they produce. Boston is ranked fourth after Los Angeles, with Seattle's metropolitan area fifth.

In 1978, the situation was reversed. Only one western city, San Jose, ranked in the top five. Rochester, Minn., Williamsport, Penn. and the Kalamazoo-Battle Creek, Mich., area led the list, followed by San Jose and Sherman, Tex.

Rochester, where IBM built mainframe computers, lost ground when the company failed to anticipate the switch to personal computers. Williamsport fell off the top-50 in the early 1990s, when defense cutbacks led to a shakeup in the aerospace industry.

Kalamazoo-Battle Creek fell in the rankings because its primary high-tech industry, drug manufacturing, has declined as a share of the overall national economy, said DeVol.

San Jose remains the undisputed center of technology development with a composite score of 23.6.

Scores were based on a complex formula that considers several factors, including the impact of technology on the local economy and its contribution to the total revenue produced by the nation's high-tech companies. In 1998, San Jose accounted for 5.8 percent of a total national high-tech output of $1.5 trillion.

By comparison, Dallas scored 7 and Los Angeles 6.9.

Silicon Valley, which includes San Jose and surrounding cities, remains the world's technology capital despite an exceptionally high cost of living and problems like traffic congestion and housing shortages, DeVol said.

"It's a very high-cost location, and there is a lot of (traffic) congestion, but most major firms still want to have a presence there," he said.

Dallas benefitted from a diversified technology base that includes the world headquarters of GTE Corp. and the U.S. headquarters of Canada-based Nortel Corp., Stockholm-based L.M. Ericsson, Japan's Fujitsu LTD and the French telecommuncations company Alcatel SA.

Los Angeles' No. 3 ranking resulted from the growth of multimedia entertainment, including small special effects companies that cater to the film industry. The figures for Los Angeles, however, are inflated because of the way the federal government compiles movie-industry data.

Top 25 Milken Institute Tech-Poles

RankTech PolesComposite
1San Jose, CA23.69
2Dallas, TX7.06
3Los Angeles-Long Beach, CA6.91
4Boston, MA6.31
5Seattle-Bellevue-Everett, WA5.19
7Albuquerque, NM4.98
8Chicago, IL3.75
9New York, NY3.67
10Atlanta, GA3.46
11Middlesex-Somerset-Hunterdon, NJ3.4
12Phoenix-Mesa, AZ2.6
13Orange County, CA2.59
14Oakland, CA2.21
15Philadelphia, PA2.19
16Rochester, MN1.95
17San Diego, CA1.93
18Raleigh-Durham-Chapel Hill, NC1.89
19Denver, CO1.81
20Newark, NJ1.8
21Austin-San Marcos, TX1.78
22San Francisco, CA1.62
23Houston, TX 1.62
24Boise City, ID1.43
25New Haven-Bridgeport-Stamford, CT1.33

* Composite Index is equivalent to the percent of national high-tech real output multiplied by the high-tech real output location quotient for each metro.

Source: The Milken Institute

For a full-text Adobe Acrobat-format copy of the report, click here.