In Silicon Valley, the cost for talent is too high—and climbing. Will smart technology companies start moving to smaller markets? Behold the brave new economic geography.

Downtown Dubuque, Iowa. (Photo: Dirk/Flickr)

The Innovation Economy is dying. And by that I mean the economy centered in Silicon Valley is converging. And by that I mean the cost for talent is too damn high. Looking under rocks in Dubuque, Iowa:

Dubuque was a city on a downward spiral. With the collapse of the farm economy in the 1980s, the city watched as the Dubuque Packing Co. closed up shop, and then as John Deere—still the city’s largest single employer—sliced its workforce by about three-quarters from its peak. Everyone in town, it seemed, either lost his job or had a relative who had. All told, Dubuque lost 10 percent of its population. Then IBM moved into an empty Depression-era department store. The shoppers who had once filled its nine stories had long since taken their business elsewhere. The morbid joke locals tell about downtown was that it was so dead, you could shoot a cannon down Main Street and not risk hitting anybody. ... ... When the IBM project surfaced, Dubuque was able to convince the company that its culture of working together to identify and rectify problems wasn’t just happy talk, but something the company could rely on. When IBM expressed concern about the local talent pool, Greater Dubuque downloaded and printed off 600 relevant resumes aspirants had put in its job-search database. During an early conference call, the city gathered nearly two dozen individuals from both its own agencies and the private sector to answer any questions the company might have. One of its competitors in the South, by contrast, had the mayor handle the call by himself on a cellphone with spotty service.

Emphasis added. Thanks to its manufacturing past, Dubuque has a talented workforce that is relatively cheap. That's true for a lot of legacy cities from Springfield, Massachusetts, to Muncie, Indiana. The industrial wealth meant well-educated children who had the wherewithal to get far, far away did exactly that.

Dubuque's reversal of fortune isn't news to me. In 2009, the IBM-to-Dubuque deal was a sensation in the ephemeral way that social media has redefined stories years in the making into a lucrative weekend trip to Las Vegas. Dubuque wasn't an instant success, but an indicator of a larger trend:

Dubuque, Iowa (population 57,000) is wooing and close to landing a 1,300 person IBM IT facility. They are offering $52 million in incentives but that is not interesting part. Look at how they approach the issue of workforce availability. ... ... The truth of the matter is that most of the big ICT players in North America from Microsoft to Google to IBM (don’t forget RIM) have been putting large facilities in relatively small markets in recent years. This goes a bit counter to traditional cluster theory but the logic is actually quite simple. These large firms do in effect ‘raid’ top talent from other smaller ICT companies in these communities.

How did Dubuque approach workforce availability? It wasn't the surplus of prospective applicants referenced in the first story cited above. Unfortunately, the Internet ate the newspaper article that explains. Luckily, I archived it:

The proposed International Business Machines Corp. project is so large and the company so well-known that IBM plan proponents believe information technology workers and students in a 100-mile radius around Dubuque are well within reach. In addition to the local colleges, the University of Wisconsin-Madison, the University of Iowa and the University of Northern Iowa fall into that region. With the ongoing recession pushing national unemployment rates ever higher, Greater Dubuque officials believe that the IBM jobs could draw workers from as far as Des Moines, Omaha, Neb., the Twin Cities, Milwaukee and Chicago. Iowa Workforce Development data found that there are 22,000 potential information technology workers in that 100-mile radius around Dubuque, a figure that didn't surprise City Manager Mike Van Milligen.

Behold the brave new economic geography. The game in San Francisco is an upward spiraling ping-pong match between higher priced real estate and talent. The safety valve is Dubuque. The talent cache for Dubuque is just as good, if not better, than the one attracted to Greater Silicon Valley. It's also much cheaper. Smart companies such as IBM are cashing in on the geographic arbitrage. You should, too.