The World is Not Flat: Distance Matters

The early 1990s were full of excitement about the then-new idea of `telework’. A study titled ‘Telework: A New Way of Working and Living‘ told us that:

Telework is ten years old. In its short time its capacity for redrawing the geographical and organisational boundaries of the traditional, centralised entreprise has been amply demonstrated. The positive consequences: […] new employment opportunities for various categories of workers, potentially without geographical limits.

The dream was that we could work from anywhere: congested roads during the morning commute would be a thing of the past as we could simply stay at home; or move to an inexpensive countryside house with a pool and a garden — all we need is an internet connection.

We would avoid the long flight across continents to meet face-to-face or discuss contracts. Conference calls and visioconference would wipe out jetlag fatigue and impersonal hotel stays.

Of course that vision didn’t come through. Technology has made face-to-face communication more important, not less. Online communication is much more likely with somebody living in the same metro area than with somebody living in another urban cluster. Wannabe IT entrepreneurs still need to meet their Venture Capitalists face-to-face: would Marc Andreessen endow a new entrepreneur that he hasn’t met in person? The whole premise of the Silicon Valley is that people want to live close to other people with the same interest.

In a recent paper titled ‘Does Distance Matter in Banking?’, Kenneth Brevoort and John Wolken show that most banking relationships remain local, with a median distance between lender and SME of 5 miles. More significantly perhaps, such distance has actually decreased in the early 2000s.

Distance matters. The world’s cities are as important as ever as families are ready to pay large sums of rental money to live in crowded apartments rather than in less crowded rural or semi-rural houses. Close to 55% of the world’s population now lives in urban areas. The world is not flat.