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Are startups causing inequality?

Earlier this week Richard Florida published on article on CityLab talking about the relationship between tech innovation (in cities) and inequality. Specifically, the article deals with the correlation between venture capital investment and a variety of factors, such as monthly housing costs, wage and income inequality, and so on.

The intent of the piece was to address the growing backlash against tech workers – in places like San Francisco – who have become the symbol for the growing gap between the rich and poor.

The strongest correlation appears to exist between venture capital investment and housing costs. As the amount of venture capital goes up, so do housing costs – which probably shouldn’t surprise you. The rich start outbidding the poor for housing. Note: The two outlying dots at the top right, in the graph below, are Silicon Valley and San Francisco.

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But when it comes to inequality, the relationship isn’t so clear. For wage inequality, there seems to be a relationship. But for the broader income inequality measure, the relationship is fairly weak. Here’s the graph:

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So this is not as black and white as it might seem. Regardless, Florida ends the piece with the following statement (that I think is spot on):

It’s time to stop pointing fingers and get on with the far more important task of harnessing the urban tech revolution to create a new urban middle class and a more inclusive urbanism—one in which many more workers and residents can participate, and one from which many more can benefit.

The answer is not to stop innovating. That would be counterproductive. We should be be encouraging innovation, but at the same time figuring out how best to harness it for society as a whole.

Tomorrow, I’ll touch a bit more on how we might go about doing that. I have a post planned that I think will tie in really nicely to this discussion. So stay tuned.

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