Midwest prospects and the new economy

and Internet configuration/content
firms illustrates. Importantly for re-
gional policymaking, the well-docu-
mented tendency of high-tech regions
to perpetuate themselves—due to the
spatial proximity of similar and com-
plimentary activities—is strong.
IT/HT workers tend to gravitate to-
ward existing urban concentrations of
IT/HT activity because they are most
likely to hear of better job opportuni-
ties in such places and to be more mo-
bile in transitioning from job to job.
Entrepreneurs find it advantageous
because “new ideas are in the air,” be-
cause the specialized support services
such as venture capital are proximate,
and because it is easier to find special-
ized workers. This means that the San
Jose-Silicon Valley phenomenon is un-
likely to be easily replicated.

Nonetheless, some spatial spread of
the new economy along a subset of
industries and dimensions is now tak-
ing place. As the new economy has
evolved toward information transmis-
sion, development of information
content, and application of new tech-
nologies to old-line industries, certain
segments of the service sector have
become high-growth sectors, displac-
ing some of the former importance of
hardware manufacturing and systems
software production. The software
applications boom was the initial mani-
festation of this trend, followed by
businesses producing informational
content and systems for the trading
of information and goods/services
over the World Wide Web. As evi-
denced by the booming Internet con-
figuration and application sectors in
the economies of San Francisco, Los
Angeles, New York, and Chicago, infor-
mation technology has begun to move
out of the domain of a small number
of large hardware and software com-
panies to business consulting compa-
nies, old economy adapters of new
technologies, and entirely new compa-
nies or industries that seek to exploit
the value added of the Internet.

Industry or activity?

The rapid evolution of new industries
arising from technological change
points up deficiencies in analyzing
the regional presence
of the new economy
based on particular in-
dustries. Although
there are the obvious
high-tech goods and ser-
vices, such as digital
phones and wireless
web services, there are
also many hybrid
industries, as well as
old-line industries now
undergoing technologi-
cal transformation, for
example, management
consulting, some types
of retail, new logistics management
businesses, and manufacturing of
standard products using advanced
processes.

One notable example for the Midwest
is the automobile industry. At first
blush, we might not think of motor
vehicles as high-tech goods. But
modern vehicles are equipped with
a range of high-tech devices, such as
on-board computers that monitor
the function of the engine, sensors
that detect when one wheel is slip-
ping and transfer power to another,
and global positioning systems that
provide driving directions. So, too,
auto manufacturing has pioneered
production processes such as “just-
in-time” auto assembly and supply
chain management. However, the
automobile industry is not included
in the AEA’s compilations.

A recent study by the Michigan Eco-
nomic Development Corporation
(MEDC) and the Michigan Automo-
tive Partnership points out just how
sensitive such estimates can be. The
study uses a more comprehensive
definition of high-tech industries
derived by the U.S. Department of
Labor that includes the automobile
and aerospace industries. (The Labor
Department definition of high tech
is based in large part on research and
development performed by an indus-
try.) When the more comprehensive
definition is used, Michigan’s ranking
in high-tech employment jumps from
seventeenth in the nation to fourth.
At the same time, the Midwest region’s
employment concentration rank in
high-tech industries rises from eighth

out of nine to third, largely due to
the heavy Midwest presence in auto-
motive production (figure 2).

The auto industry also demonstrates
how defining a region’s tech intensity
by its concentration of entire indus-
tries rather than by industrial activities
can sometimes be misleading. That
is because the various activities that
take place within a single industry
sector are often distinct in their degree
of reliance on technology, as well
as disparate in location. Consider
research and development (R&D)
activity, which gives an indication as
to the amount of technology that goes
into a product. While an emphasis
on R&D in defining high-tech indus-
tries may make sense on a national
scale, it may be less useful at the
regional level. This is because produc-
tion is not necessarily located where
product development takes place.
Thus, much of the auto industry’s
R&D continues to take place in the
Midwest, especially in Michigan, while
automotive production has clearly
decentralized to other states, such
as Kentucky, South Carolina, and
Tennessee, as well as to other coun-
tries. Therefore, Michigan’s argument
for inclusion of the auto industry
as a technology producer may be
valid, whereas such an argument for
Tennessee may be less so.

Both the rapid evolution of industries
and the problems of defining the high-
tech industries suggest that broader
or cross-industry indicators of regional
economy IT/HT may be insightful.
In contrast to its low AEA rankings
by IT/HT employment, Michigan

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