The Biden Administration and Economic Development Administration announced the inaugural designation of 31 tech hubs designed to foster innovation in emerging industries. The goal is to fund creation, jumpstart an industry, and create jobs. Unfortunately, records of place-based policies have cast doubt on how beneficial these programs will be.
Part of the CHIPS and Science Act, the tech hubs program, announced in October 2023, aims to establish 31 tech hubs nationwide designed to focus on developing and investing in specific emerging industries. The tech hub’s focus ranges from sectors such as artificial intelligence, precision medicine, clean energy, critical minerals, and others. These designated institutions will be able to compete for five hundred million dollars in funding to spur economic growth and innovation in the primarily rural areas where the hubs are located.
Government investment in technology is nothing new, and many examples of success exist. Although the standouts often developed from investment in technology with military or national security purposes that were later applied to the private marketplace. This is different than investing in specific companies or areas.
The biggest success story in recent memory is the creation and later privatization of the Internet. While the Internet and its precursors were developed primarily for government and academic use, many others saw the potential for the network to connect computers worldwide. The U.S. Advanced Research Projects Agency Network (ARPANET), the program that created the foundation for the Internet, began as a small network of computers for universities and government use. As the web developed, more nodes joined. It remained restricted to government use for a while. A manual for the Artificial Intelligence Labs at Massachusetts Institute of Technology in 1982 said, “It is considered illegal to use the ARPAnet for anything which is not in direct support of Government business.”
While initially unknown, interest in ARPANET eventually reached the point where the government was concerned and tried to keep unauthorized people off the network in the 1980s. The Internet was commercialized in the 1990s, and soon after tools were created to make navigation on the web easier, such as web browsers and search engines. This innovation led to an era-defining shift in communication and the design of entirely new industries once commerce was allowed.
Rather than intending to create this economic boom with specific outcomes in mind, as in the tech hubs, the government played a role in technology development, which was then maximized by the private sector. However, this success does not necessarily justify the tech hub program.
A review of place-based policies, or policies that focus on specific geographical areas to create economic growth, found mixed results on job growth, a vital goal of the tech hubs program. In some cases, the job growth in one area was accompanied by a decline in jobs for nearby regions, suggesting that the jobs simply moved rather than creating new opportunities. Overall, past place-based policies have shown little efficacy at best and often do not revitalize their selected areas as envisioned by policymakers.
Contrast this program with the rise of Silicon Valley as a center for technological innovation, which was largely driven by existing local factors such as proximity to research facilities universities, and the presence of venture capital to fund new enterprises. This led tech companies to the area. The tech sector’s flourishing led to the creation of industries unimaginable just a few decades ago, and the market, not the government, picked the winners in this process.
President Biden’s plan to invest in tech hubs in underserved areas is well intended. Still, good intentions do not necessarily lead to positive outcomes; ultimately, the latter matters most for policy. Previous attempts at place-based economic policy have yielded tepid results at best and pale compared to what has been accomplished through market processes. When the government begins to pick winners rather than the market, we all lose out.
Trey Price is a technology policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information, visit https://www.theamericanconsumer.org/ or follow us on Twitter @ConsumerPal.