Regional Advantage

Route 128, Saxenian argues, organized itself around the independent, self-sufficient firm. The dominant companies were vertically integrated: they tried to do everything in-house, from designing chips to manufacturing components to writing software to selling finished machines. Digital and its peers were proud of this self-reliance. It felt like strength — a company that controlled its whole production chain answered to no one and kept its secrets close.

The culture that grew around this model was one of secrecy and loyalty. Employees were expected to spend their careers inside a single firm, and the firm returned that loyalty with stability and clear hierarchies. Information stayed behind company walls. Engineers signed agreements that discouraged them from carrying ideas to competitors, and moving between rival firms was seen as something close to betrayal. The boundary between the inside of a company and everything outside it was thick and heavily defended.

Silicon Valley had drifted into an almost opposite arrangement. Instead of a few fortress firms, it grew a dense web of smaller, specialized companies that depended on one another. A chip designer, a manufacturer, a software house, a testing outfit — each did one thing well and relied on the others for the rest. The boundary between firms was porous rather than defended, and the whole region behaved less like a set of rivals and more like a single, loosely coupled system that happened to be split across many payrolls.

The engine of this system was the movement of people. Job-hopping in the Valley was not treason; it was normal, even respectable. An engineer might work at three companies in five years, and California law made non-compete agreements largely unenforceable, so knowledge traveled with workers wherever they went. Ideas leaked constantly — over dinner, at industry gatherings, in the famous informality of the place. What a fortress firm would have guarded as a secret, the Valley circulated as common currency, and the circulation made everyone smarter faster.

The deeper claim in Regional Advantage is that we have been looking at competitive advantage in the wrong place. For decades, economists and managers treated the firm as the natural unit of analysis: strategy, culture, and success all belonged to the company. Saxenian's comparison suggests that the real unit is often the region — the surrounding fabric of firms, workers, universities, and social ties that no single company controls but that every company draws on. Silicon Valley's advantage was never fully inside any of its companies. It lived in the space between them.

That reframing has teeth. It means a brilliant firm planted in the wrong industrial culture may wither, while a mediocre one embedded in a rich network can be carried along by the whole. It means the informal things economists tend to ignore — how freely people switch jobs, whether failure is stigmatized, whether engineers talk to rivals over dinner — can matter more than tax incentives or R and D budgets. The Route 128 firms did nothing obviously wrong by the logic of their own model; they were simply embedded in a fabric that could not adapt as fast as the technology demanded.

By the mid-1990s, when Saxenian published her account, the verdict was hard to argue with. The Route 128 giants that had once defined the American computer industry were fading; Digital Equipment, the proudest of them, would be absorbed by a rival before the decade was out. Silicon Valley, meanwhile, was rolling into the internet era with the same restless energy that had carried it through semiconductors and personal computers. The two regions had begun with the same tools and ended in different worlds, and the fork in the road was not talent or money but the way each place had chosen to organize itself.