Tech: The Goal, or Just Another Path to Growth?

In 2012, the average resident of San Francisco supported about $76,000 in gross domestic —about $19,000 more than the average in Chicago. That gap has widened to more than $29,000 today. San Francisco’s economy is growing nearly three times faster on a per capita basis than Chicago’s. Meanwhile, San Jose (Silicon Valley) is growing more than four times as fast. And they had a big lead on us to begin with.

Municipal conversations around “upskilling” workers, growing venture capital deal flow, and creating tech “ecosystems” are often confused with ends in and of themselves. But what’s the true goal of Chicago’s massive public and philanthropic effort to be a booming “tech town”?

Let’s clarify: the goal for leaders of regional economic development is growth. With proper protections for workers and natural resources, as well as the regulation of market power, growth is an unalloyed good thing. Growth means higher wages. Growth means a higher standard of living. We should, of course, recognize the development of technology as a separate and critical contributor to regional health, but tangible levels of growth should be the true measure of our regional success.

This is important to clarify. It should come as no surprise that the cities we typically associate with leading the technology sector—San Jose, San Francisco, Seattle, and Boston—all rank at the very top of major U.S. cities in GDP per capita. By this metric, Chicago ranked a dismal 15^th in 2017, sandwiched between Minneapolis and Nashville.

In this context, San Francisco and San Jose can be thought of not so much as tech towns but as productive towns. Tech is often conflated with production; but more likely, tech success is just a byproduct of effective and holistic regional economic growth strategies. Tech is a critical tool in achieving growth, but it is not in and of itself the goal.

Economists have spent entire careers and won Nobel Prizes contemplating growth, designing and redesigning “production functions”, wherein economic relationships are established between labor, physical capital (roads, machines, laboratories), natural resources (fertile soil, ports), and technology. In these models, production not explained by the first three inputs must be explained by the fourth—technology.

Production functions allow these economists to measure the hours of labor worked and their correlation with production, as well as the correlation between production and the hours a factory is in operation. Highly elastic labor and physical capital produce more output.

Establishing these relationships has perhaps never been more important than in today’s workplace. Cities more able to generate higher economic production from labor are more likely to compete in the knowledge-based economy. Highly trained workers generate more output for companies, add more value, and command higher wages. This might help explain why corporations continue to relocate to the tech-savvy West Loop in spite of Chicago’s high taxes.

Technology, economic theory tells us, is a separate but critical variable in supporting growth. It has been correctly identified as an economic force multiplier by City of Chicago officials and philanthropic leaders, yet it’s worth exploring the functions of economic growth and how technology accelerates growth.

A model designed by economists Robert Solow and Trevor Swan in the 1950s provides the foundation for that discussion. Their model assumes economies can do one of two things with output: spend or invest, where economic returns to investment gradually diminish.

Eventually, the depreciation of physical capital in this model outstrips investment, meaning the economy will terminally spend all output, repairing the physical capital it has built. As such, the rate of investment will revert, and growth in output will fall to zero.

Here, increased savings and investment can drive up production, but after this initial increase production remains static. Eventually, depreciation will eat up our ability to save and invest.

All of this is logical. But why then do even the most developed economies on earth continue to grow long after the depreciation of physical capital squeezes savings and investment? Take, for example, the United States, where deteriorating infrastructure handcuffs our ability to invest in things like high-speed rail, which leaves us to spend all public dollars ensuring that bridges don’t collapse. Yet, this reality hasn’t seemed to undermine growth too much. Why?

The answer is technology. From the work of economist Paul Romer at New York University, we learn that technology is not some abstraction given to us exogenously but an economic variable we can alter and define endogenously.

Technology, Romer found, isn’t simply something that enters into the market to increase productivity. Rather, the technology factor can be shifted through decisions we as policymakers make to drive economic growth: through research, development, and eventually spillovers to other actors in the economy. Technology commercialization and dissemination then allows for labor and physical capital to be more productive and regional economies to grow.

In other words, we have the power to make technology work for us.

How we do that is a matter for public leaders to address and should be a central concern in local elections, such as the race for Mayor. But the development of technology can also be a variable separate from debates around labor force development and new real estate. Support for technology should focus on the source: the research laboratories and inventors.

The reality is that technologies generated at places like Stanford Research Lab are more powerful in driving economic growth than those generated in our region. Decades of support for applied research and commercialization are paying off for the Bay Area.

For those charged with designing public policies and programs for supporting local economic development, recognizing why the Bay Area’s lead on Chicago is widening first requires seeing tech through the lens of growth. Then we can begin to push the right levers of policy.

 

Thomas Day is the co-founder and CEO of Invent2026.

Featured photo: cc/(tampatra, photo ID: 936494448, from iStock by Getty Images)