11.6: Quaternary Sector

Quaternary Sector

Around 1970, advances in communication technology touched off an information revolution that today is an integral part of all industries. So important is the collection, management, and analysis of data, that some have suggested that this part of the service industry should be removed from the tertiary sector and placed in the quaternary sector of the economy. Education, government and financial planning are part of the quaternary sector, but most of the focus is on high-tech software and information technology jobs.

High-skill information sector jobs come with good pay, solid benefits, little pollution and a generally higher quality of life. Although these kinds of jobs require a substantial investment in human capital by local governments (i.e. education), generating information sector jobs has become a key objective of many local/regional economic development efforts. California’s Silicon Valley, unofficially headquartered in Palo Alto, is the model high tech region that other regions try to copy. The evolution of Silicon Valley into the high-tech capital of the world has been a topic of intense study by geographers, economists, and historians for many years. Most agree that pre-existing aerospace and defense industries located in California were a key starting point for the semiconductor industry that gave birth to the computing revolution. Fueling the high-tech industries in the region were several universities, chief among them Stanford, which actively engaged in partnerships with local businesses, like Hewlett-Packard, Xerox and Bell Telephone. There was also an ample pool of venture capitalists willing to take chances investing in experimental electronics. However, those factors alone don’t seem to explain the extraordinary success enjoyed by tech companies in the Bay Area. After all, lots of places have elite universities, defense industries, and venture capitalists. California’s peculiar cultural climate appears to have played a significant role in the evolution of Silicon Valley into the pre-eminent center of high-tech innovation in the world.

Figure Palo Alto, CA - Stanford University was a key element in the development of the Silicon Valley high tech region in California.

The Creative Class

A series of spatially-informed research studies by Richard Florida suggests that culture is especially important in the development of high tech and other high-end service sector jobs. He calls the people who work in these industries “The Creative Class”. Florida analyzed the growth of the quaternary sector of the economy and found that some regions were leaping ahead. In addition to California’s Silicon Valley, The “128 Corridor” near Boston; Austin, Texas, and Seattle, Washington stood out as hubs for high tech innovation.

Figure Austin TX - This billboard proclaims Austin as the City of Ideas - and quirkily notes "Planet Earth". Bumper stickers around town urge residents to "Keep Austin Weird" and "Live Music Capital of the World" all speak to this city's embrace of difference – a characteristic especially unusual in Texas where social conservative dominate.

Florida argued that these locations stood out because each had permissive cultural environments that allowed the creative energy of individuals to flourish. Essentially, he argued that in places where people are free to be weird, cultural innovation is encouraged and economic success follows. Florida’s position stands in stark contrast to most neoclassical economists who argue that economic development is best promoted through tax breaks and business incentives, along with government deregulation (lax environmental, bureaucratic rules).

By studying the characteristics of high-tech cities, like San Jose, Richard Florida found little evidence that neoclassical economic principles promote business growth. Instead, he identified a strong relationship between the quality of life in various locations and the ability of employers in those regions to attract high and nurture talented people. The central part of his argument was that talented people were attracted to places with a good quality of life; things like good schools, parks, health care, and entertainment. More controversially, Florida posited that tolerance of diversity was a secret ingredient in the business formula of places like Silicon Valley. He argued that creative, talented people tend to embrace ideas and lifestyles out of step with the mainstream, so places that permitted individuals to express their individuality (and creativity) without fear of personal, societal or industrial condemnation, attracted and nurtured talent.

Figure : Portland, OR - By embracing its quirkiness, Portland has managed to attract business investment and thousands of new residents. Its growth threatens Portland's unique cultural life.

A key indicator of a region’s tolerance of diversity and/orits openness to creativity was its gay friendliness, which, of course, was interpreted by some as a threat to family values, etc. Florida argues that gay-friendly places also welcome a great variety of lifestyles, ethnicities and cultural orientations. Still, it is worth noting that Tim Cook, CEO of Apple Inc., perhaps the most emblematic of all creative class companies, is openly gay. What is evident is that locations where social conservatives discourage or “squelch” personal and/or industrial innovation, high tech innovation is rare. The prevailing culture in some locations encourages creative people to either abandon their ideas or to move elsewhere. So, according to this argument, eccentric people with big ideas migrate to places like San Francisco, Boston or Austin, where fellow citizens embrace eccentricity and diversity of opinion and lifestyle. Entire companies may move to creative cities to attract workers with creative ideas. The implications of these migration patterns are significant over time. One analyst called the process, The Big Sort, a process in which thousands of individual migrations have created increasingly different cultural conditions in various parts of the US. This process led another observer to predict that intolerance of diversity will lead some places to enter into a “dumb state death spiral” – where all the smart, creative, tolerant people move away, and only the less talented, less creative and less tolerant people remain.

FIRE Industries

Finance, Insurance and Real Estate (FIRE) industries also have a definite spatial logic. New York City is the headquarters for a lot of companies in this sector, but Chicago, San Francisco, Boston, and other cities have large FIRE sectors as well. The most obvious reason is that these locations function as service centers for large metropolitan areas and they have massive economic hinterlands. People and businesses require banking services, so populous regions generate many FIRE jobs. The internet has eroded some of the spatial logic of the FIRE industries, but for many people, personal networking still matters, so face-to-face interaction is still common in FIRE industries, and that is facilitated by agglomeration.

Figure Map of LGBTIQ+ rights in the United States (2014). Note the correlation between business innovation and tolerance of sexual differences. In 2020, the US Supreme court struck down these laws nationwide. Source: ACLU / Huffington Post.

Hartford – The Insurance Capital

Some locations specialize in particular types of FIRE industries. Hartford, Connecticut for example, was for many years known as the “Insurance Capital of the World”. It may or may not have deserved the title, but Hartford is home to an unusually large number of insurance companies. Nearly one-tenth of Hartford’s population works in the insurance industry.

Hartford’s location near the coast and on the navigable Connecticut River helped make it both a manufacturing center and a port during the colonial period. Locals interested in protecting the value of their cargo being shipped across the Atlantic established one of the country’s first insurance companies. That company made a lot of money and dozens of spin-off companies were started by employees of the first company established competing companies (contagious diffusion). Over the years, other insurance companies moved to Hartford to take advantage of the existing pool of workers with advanced knowledge of the insurance industry. In recent years, some insurance companies have moved from away from Hartford. Some simply moved to nearby locations where real estate was cheaper, and quality-of-life issues were better. Like many other cities with a lot of FIRE industry workers, a huge gap evolved separating Hartford’s richest and poorest residents. While Hartford is one of the wealthier American metropolitan areas in terms of Gross Domestic Product per Capita (GDP), it also suffers from a high poverty rate.

Dover – The Credit Card Capital

As you begin to develop a geographer’s habit of mind and begin thinking spatially, you may notice things like the fact that the return address on some of your least favorite pieces of US mail is Dover, Delaware – the credit card capital of the United States. You may ask yourself, “Why do I send so much of my money to Delaware?” The answer isn’t quite as rooted in geography, as it was for Hartford or Detroit. Delaware doesn’t have a long history of banking. Credit cards are a recent invention as well. Bank of America (now VISA) first introduced credit cards in Fresno, California in 1958. Delaware became the credit card capital of the world when their state legislature eliminated almost all its traditional usury laws in the state in 1981. Because in Delaware there’s virtually no cap on interest rates and few other rules regarding how they can treat customers, credit card companies in Delaware quickly became far more profitable than those operating elsewhere. Many banks quickly moved their credit card divisions to Delaware. Utah and South Dakota have tried to emulate Delaware’s success by weakening laws protecting credit card users as well. Variations in usury law in the United States create a wildly uneven distribution of predatory lending companies engaged in payday lending, car title lending and check cashing services.