In my “superstar effect” series I’ve been presenting examples of where superstars (whether individuals or cities) are generating a disproportionate share of the rewards these days.
I mentioned that I had some counter-examples and wanted to share one today. Namely that backoffice decentralization, or the move of less-than-superstar functions out of superstar cities, has benefitted a certain class of places like Denver and Salt Lake City.
The Wall Street Journal, for example, recently wrote about the decentralization of West Coast finance out of San Francisco:
Traditional finance hubs have yet to recover all the jobs lost during the recession, but the industry is booming in places like Phoenix, Salt Lake City and Dallas. The migration has accelerated as investment firms face declining profitability and soaring real estate costs.
The market’s shift to low-cost passive investing compounds those difficulties, pushing firms to look for new ways to cut costs.
Charles Schwab is emblematic. Since announcing its relocation strategy in early 2013, the company has shrunk its San Francisco headquarters to fewer than 1,300 people, a 45% decrease. Its 47-acre campus south of Denver is now Schwab’s largest office, employing almost 4,000 people. An expanded office in Austin, Texas, will be completed next year, and construction is under way on a new location near Dallas.
Surely high end finance around tech is still in the Bay Area. But more workaday firms like Charles Schwab can’t justify a huge labor force there.
They name some of the places benefitting from this exodus, what I’ve previous labeled “horizontal” cities (in contrast to the “vertical” superstar cities). It’s part of the sorting of the economy that has been going on.
In some respects its better to be a horizontal than a vertical city. The costs are lower. You’re more likely to get large scale employment. And you can be more diverse.
The problem is that there are only a limited number of these successful horizontal cities. There are plenty of places that are succeeding in neither model.
But for places like Salt Lake City, Denver, Austin, Nashville, Columbus, etc. they don’t need to be Manhattan or San Francisco. They can still have great success without being superstar oriented.