A Clever Test of the Internet’s Leveling Power

Posted by: Michael Mandel on June 06

Another item from Peter Coy (for which I thank him greatly):

An intriguing new research paper argues that the Internet is eroding the competitive edge of elite universities. In the 1970s, there was a positive effect of being affiliated with an elite university—professors were more productive because they were able to collaborate face to face with elite colleagues. But that effect weakened in the 1980s and disappeared in the 1990s because the Internet eliminated the need for face-to-face collaboration, says the new paper (NBER Working Paper No. 12245). It’s by E. Han Kim of the University of Michigan, Adair Morse of Ann Arbor, Mich., and Luigi Zingales, a University of Chicago Graduate School of Business professor who is visiting at Harvard University.

Salaries increased the most where the estimated positive externality from collaboration with elite colleagues dropped the most, the authors found. That’s consistent with the idea that the universities had to pay full price to retain their stars because the location itself lost its special attraction.

With the Internet making collaboration at a distance easier, more stars seem to be operating out of non-elite schools, knowing they can still do research with colleagues at the prestigious schools. Among all articles published in the top 41 journals that were written by scholars at top-25 schools, the percentage of co-authored papers with colleagues in non-elite schools nearly doubled, from about 32% in the early 1970s to 61% in 2004.

As the authors say, this research has implications well beyond academia. Any knowledge-based industry that is geographically concentrated would seemingly be threatened with dispersal by the Internet. Think Silicon Valley. Or Manhattan. Or … the United States itself. Here’s the authors’ conclusion:

At the macro level, our results suggest that countries leading in technology may find it difficult to sustain their competitive advantage. Advances in information technology facilitate easier, low cost access to the technological frontier for researchers and knowledge coordinators worldwide, providing them with an opportunity to challenge the leadership roles in knowledge-based industries in a relatively short span of time.

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Reader Comments

Brandon W

June 7, 2006 12:35 PM

Thus, one may question the argument that "it doesn't matter if jobs go elsewhere, the United States can just innovate to stay on top." Don't you think?

Kartik

June 7, 2006 05:58 PM

I think only certain types of collaborations (like research) can disperse. Things like management still require facetime, and the US is far ahead of other countries in management sophistication.

Just consider :
1) Telecommuting has not caught on in Silicon Valley, particularly among marketing and management, despite how attractive it would theoretically be for time saving, traffic, fuel consumption, etc.
2) Business travel, at the very least, should be going down, as it is very expensive to corporations (airfare, hotel, meals, etc). Yet, it is not. Face-to-face still matters.

The US will remain the sole superpower in 2030. Here is why :

http://futurist.typepad.com/my_weblog/2006/05/why_the_us_will.html

david foster

June 8, 2006 09:06 PM

Does academic collaboration typically involve working with people at the same campus? Or does it more typically involve working with people in the same field at different campuses? My impression is that the second model has been more common for a long time.

Mike Mandel

June 9, 2006 10:19 AM

Brandon,

That's why I have consistently emphasized the importance of the financial system in determining U.S. competitive advantage.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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