The city of Madison’s efforts to build a technology industry — both tech and biotech — have paid off handsomely over the past four decades. Madison continues to reside near the top of many “Best of” lists for quality of life, and the city is largely prosperous despite the COVID-19 pandemic.
Madison also is a city with growing diversity that has yet to achieve equity among its population. Wealth disparity is a persistent issue, as is quality affordable housing. Still, it’s hard to argue that the rise of the local tech sector hasn’t lifted most ships in and around the capital city.
However, as the tech sector has grown, has it come at the cost of economic diversity? Is Madison becoming too heavily reliant on glossy tech jobs? If we’ve seen the collapse of rust belt cities across the country in prior decades, could Madison someday join a list of other tech-centric metropolitan areas that rode the wave of an IT boom only to be unprepared for a crash?
The answer, according to local experts, is relatively straightforward — no. That doesn’t mean, however, that Madison shouldn’t tread carefully and work to head off some problems before they get worse.
“What a great problem to have, if over-reliance on tech was ever to occur,” says Tom Still, president of the Wisconsin Technology Council. “No, it is not causing a lack of economic diversity — in fact, it’s quite the opposite. Madison would not have the vibrant restaurant, entertainment, real estate, arts, retail, service, and supply-chain sectors it has today if not for tech ‘coming of age’ after decades of hard work and investment.”
Still notes that Madison remains predominantly a government and university town, a fact that’s not likely to change any time soon. However, in the early 1980s, he points to a group of visionaries who knew that unless Madison moved beyond government, the UW, and a few big private players, it was headed for economic diversity troubles. They were right then at the birth of University Research Park, says Still, and they’re still right.
“Think about the largest employers in Dane County,” Still advises. “In addition to the UW and the state, it’s American Family, Covance, SSM Health St. Mary’s, TDS, Exact Sciences, Promega, Sub-Zero, WPS, and Epic. Only four are truly ‘tech companies,’ although they all lever tech. That’s not necessarily in order, of course.”
Scott Resnick is a former Madison alderman and former executive director of StartingBlock, the Madison entrepreneurial hub dedicated to supporting local startup businesses. As the chief operating officer of Hardin Design & Development and StartingBlock’s current entrepreneur-in-residence, he is in a unique position as someone working and creating in the tech sphere who also helped shape public policy for the city.
“Over the last 30 years, Madison has greatly increased its economic diversity,” Resnick notes. “This is a reflection of growth from employers like Epic and Exact Sciences and the exit of Oscar Meyer. Depending on the definition that you are using, we are more diverse from a sector perspective. Regardless, the knowledge economy is not going away. Software programmers and engineers are in high demand across the entire country, and Madison has one of the deepest talent bases per capita anywhere in the country. Even if a major employer were to leave
or a startup was to fail, these jobs are still
in very high demand.”
Resnick points to 2019 data from the Bureau of Labor Statistics on Madison, which ranked the city 40th in total IT jobs and seventh in density. “I can’t underscore how amazing that is and how envious most communities would be of our talent base.”
Zach Brandon, president of the Greater Madison Chamber of Commerce, agrees. “We are fortunate to have the most diverse economy in the country, according to [labor market analytics firm] Emsi, with a stable and diverse set of industries, and our growing tech sector has actually been a factor in diversifying our economy,” notes Brandon.
“We are in an increasingly tech-enabled economy, as every company relies to some extent on technology. We also know that much of our private sector growth is coming from advanced industries like technology and research and development. For each job created in these industries, an additional 2.2 jobs are created elsewhere, generating more community wealth. Our region has a lot to offer employers in both quality and quantity of talent, a centralized location, and affordable space to grow, but that value extends beyond just tech businesses.”
For all of those bright spots, Resnick and Brandon urge caution about going all tech, all the time. San Francisco is the poster child for how the inequities of the tech sector can manifest themselves, says Resnick. “The tech sector contains high wages distributed primarily to well-educated and well-off individuals, which exacerbates the income and wealth gaps. It can also create spikes in housing prices and raises the cost of many goods and services.”
That’s echoed by Brandon, who says it would be unwise to go all-in on one particular industry. “We also know looking at metros that are dominant leaders in digital services jobs that it can lead to increasing disparities,” Brandon says. “The biggest risk is inequitable wealth growth, with a divide between people who have advanced degrees and are working in this space versus those who are not. This is where public-private partnerships, smart alignment of education, business, and workforce development, and forward-thinking public policy are all important to ensure the growth that occurs is inclusive and sustainable.”
Still notes that “Big Tech” has a presence here but not a dominating one. “It would be a stretch to think the city’s economy revolves too much around tech. It is a major part of the private-sector economy, but it is still predominantly a public sector and health care dominated city. Remember, too, it’s not as if Madison is home to massive outposts of Google, Microsoft, Facebook, and Amazon, the ‘big tech’ players most likely to be affected by stock-driven or political problems.
“Sure, some of those companies have a presence here,” Still continues, “but not so much as to drive the local economy down if there are adverse market conditions. Promega and Epic are privately held; Exact Sciences is publicly held but in a relatively stable health care sector. Most tech companies in the Madison area are small to mid-sized and still growing.”
Economic balancing act
Despite those plaudits on the diversification of Madison’s economy, this isn’t a perfect picture. Balance is key in all things in life, but for all its strides, Madison still has a way to go. While that should assuage any lingering concerns that the city is growing too dependent on its burgeoning tech sector, it belies the efforts Madison still needs to make.
In 2018, WalletHub studied the cities with the most and least diversified economies, and Madison ranked in the bottom fifth nationally. “During the Great Recession [2008-09], local economies that diversified, tapping into new ideas and innovations, proved to be more resilient than the cities that stuck to their old tricks,” wrote WalletHub Senior Writer Richie Bernardo.
“Some researchers have found that greater professional and industrial variety increases a city’s productivity, a pattern in growing and large urban areas in the U.S. and around the globe,” Bernardo continued. “In other words, diversification helps an economy the way it protects an investor’s portfolio: Over time, job gains in some sectors will offset the losses in others. And that was exactly the outcome at the end of the financial crisis, when the number of professions in health care and social assistance multiplied while construction and manufacturing occupation rates declined.”
In its study, WalletHub compared the 501 largest U.S. cities across three key metrics: industry diversity, occupational diversity, and worker-class diversity. While Wisconsin obviously isn’t home to the nation’s largest metro areas, which should, in theory, be more diversified on sheer size alone, the study’s findings still weren’t particularly kind to the Badger State.
Wisconsin’s 10 largest cities by population all made the list, but none rated in the top half nationally. Green Bay fared best at No. 305, followed by Racine (331), Milwaukee (333), Janesville (354), Kenosha (357), Oshkosh (386), Eau Claire (392), Madison (401), Appleton (420), and Waukesha (429).
The metric that Madison performed best in was worker-class diversity with a ranking at No. 104, which considered the civilian employed population aged 16 and older and factored in:
- Private wage and salary workers;
- Government workers;
- Self-employed workers (operating unincorporated businesses); and
- Unpaid family workers.
Among the experts consulted during the study was Sunwoong Kim, a professor of economics at the University of Wisconsin–Milwaukee. On the benefits to residents of living in an economically diverse city, Dr. Kim notes, “More diverse jobs are available so that a better match can be found between talents and job requirements. More diverse consumption goods and services are available, but the advantage of consumption goods is sharply reduced by the development of a modern transportation system which is cheap and fast. However, diverse and more specialized service is valuable.”
Interestingly, Dr. Kim says that cities with diversified economies did not necessarily weather the Great Recession better. “Specialized cities with stable and growing demand for their products can weather economic downturns,” Kim explains. “However, a large city specialized in a declining industry will be hit hard in the economic downturn. Detroit would be a good example. It has been specialized in automobile manufacturing, a declining industry in the U.S., although it is a booming industry globally. The fall of the U.S. auto industry brought down Detroit.
“San Jose specialized in the ICT [information and communications technology] industry that has been booming for the last several decades, and it has been doing well,” Kim adds. “Large cities, such as New York and L.A., tend to be more diversified and are more likely to be stable throughout the business cycle.”
Kim also says that cities with diversified economies are not more likely to experience job and wage growth than cities with more specialized economies. “Cities with growing industry are likely to experience growth in employment and wage, but small cities cannot be diversified too much. [They] need to specialize in industries that have more competitiveness. At the same time, large cities specializing in a declining industry need to be more diversified in order to avoid the long-term stagnation.”
According to a 2019 study by the Brookings Institution and the Information Technology and Innovation Foundation, the U.S. technology sector continues to grow rapidly, driving the nation’s innovation and overall economic growth. However, advanced technology companies are increasingly concentrated in only a few very high-cost hubs — Silicon Valley, Boston, and Seattle — creating a “winner-take-most” dynamic. The result is not only increasing regional inequality and lost opportunity in the heartland, but reduced U.S. competitiveness as well.
The report details how the winner-take-most dynamics of the innovation economy have led to dominance but also livability and competitiveness crises: spiraling real estate costs, traffic gridlock, and increasingly uncompetitive wage and salary costs. Meanwhile, in many of the “left-behind places,” the struggle to keep up has brought stagnation and frustration. These uneven realities represent a productivity, competitiveness, and equity problem.
Robert D. Atkinson, the report’s co-author and president of ITIF, said, “America’s successful tech hubs haven’t emerged by accident — most are products of deliberate policy choices and federal government support. The neoclassical economics idea that markets can be left to drive innovation has instead left the heartland behind.”
Proactive public policy
While Atkinson and his colleagues argued in favor of increased federal investment to create a network of regional technology hubs to offset the economic stagnation in the center of the country, Dr. Kim from UW–Milwaukee says diversification alone cannot be the goal.
“It needs to be competitive in growing industries,” advises Kim. “However, if a city is specialized on declining industry, it needs public policy attention. For example, Rochester [New York] specialized in the film industry — it has gone down. At the same time, Seattle specialized in ICT and aeronautics, which has been growing.”
“There is a lot we can learn from other metros about thoughtful planning and strategic investments in transportation, housing, education, and workforce development to accommodate growth in a thoughtful way that doesn’t jeopardize livability,” Brandon states.
The benefits of the tech sector also need to start trickling down more tangibly to the rest of the local economy, argues Resnick. “We need to ensure everyone is benefiting from these high-wage jobs by raising wages and benefits across the board, promoting equitable workforce development opportunities that diversify the industry and ensuring that affordable housing is available throughout the community,” states Resnick. “Ideally, we need to figure out how more people can experience economic and social upward mobility through the tech sector.”
“We have a Madison and Dane County economy that is strong precisely because it is so diverse,” notes Still. “Continuing to welcome companies and investment in all sectors is the way to guard against relying too much on one specific sector, whether that be the public sector or part of the private.”
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