The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

Why does location matter so much in this age of technological wizardry? Can’t people in communities that lose jobs simply telecommute? After all, isn’t one element of the technological revolution the increasing ability to work at a distance? My daughter seems to accomplish everything she can do in her office, even while staying a continent away from it. As another example, Mitchell Petersen and I found that the average distance between a small-business owner in the United States and the bank branch she borrowed from had been increasing steadily since the 1970s, and recent work has confirmed that this pattern continues.8 The reason obviously is that banking transactions went from being conducted in person, to being conducted on the phone, then online, reducing the need to be nearby. Somewhat paradoxically, though, despite being able to work at a distance, more and more skilled people seem to be attracted to places where there already are plenty of skilled people.9 Perhaps this is because serendipitous human interaction still matters. Today, it is rarely the lone inventor, beavering away in his basement, who comes up with the revolutionary break-through. Instead, innovation emerges from teams of productive people spurring one another on. Perhaps they need to be in the same room to generate ideas. Perhaps teams are cross-fertilised by other competing teams of smart people nearby, through meetings in bars and parties, or by simply poaching their members. That the whole is grea...

Why does location matter so much even now