The Undercover Economist

The Distance Paradox

If telecommuting is so easy, why do we travel for work more than ever?

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It stands to reason that distance is dead. Electronic communication is better and cheaper than it’s ever been. Sitting on the sofa just now, I used a cheap laptop computer and my neighbor’s wireless network and ordered a free quad-band mobile phone that—I am told—will let me make calls and send e-mails from almost anywhere in the world.

More to the point, nobody would be remotely impressed with my phone’s features. Virtual worlds, BlackBerrys, video-conferencing from the local Starbucks—it has all become so easy—and so commonplace—so quickly.

Intuitively, that should mean that geography has become less important. E-mail and video-conferencing mean fewer flights. No more business conferences or meetings at Davos. Telecommuters don’t need to clog up the roads, and property prices in London and New York should slide as people carry out their investment-banking responsibilities from Yorkshire or Iowa.

It doesn’t take a genius to figure out that there’s something wrong with this argument. Despite the ease of communication and the drop in the cost of transporting goods, geography seems to be as important as ever for most of us. People haven’t stopped flying to meetings and conferences. The World Economic Forum meetings are now a round-the-calendar circus in more than 10 countries. New York is one of the few places in the United States where the real-estate market isn’t stuttering.

So, what is happening? To some extent, the same thing that happened to the paperless office. It turned out that all these computers made it easy and cheap to produce a lot more documents. Yes, the documents could in principle have been viewed on-screen, but why not print them out?

Similarly, e-mail, Internet networking, and cheap phone calls have made it easy to maintain a lot of relationships. In principle, some of the relationships could be restricted to cyberspace, but how much fun is that? The same e-mail that allows you to maintain long-distance business relationships also creates demand for more travel and more conferences as people try to establish those relationships in the first place. Mobile phones, Web mail, and BlackBerrys also make travel less costly because it is easier to keep working on the move.

Closer to home, communication technology makes it easier than ever to arrange a drink with friends. Just send a quick e-mail to a distribution list or post the invitation on your online journal. This sudden spontaneity isn’t much use if your friends are hundreds of miles away. Mobile phones, far from fueling a flight to the countryside, make big cities more attractive and more manageable. E-mail and mobile phones aren’t substitutes for face-to-face contact at all. As economists Jess Gaspar and Ed Glaeser have pointed out, they are complements to it.

Other technological changes have also strengthened the importance of place. If you can buy cars or films or insurance from anywhere in the world, why not buy from the place that is host to the best or cheapest producer? Cities that were once nationally dominant can now become international champions. It suddenly becomes more valuable, not less valuable, to locate in New York or London.

The modern economy demands ever more complicated, fast-moving, innovative, and creative projects. Formal contracts just aren’t up to the task of keeping us honest in these circumstances, which means you need to be able to trust your colleagues—something that still requires you to look them in the eyes. Face-to-face meetings have always fostered trust and clearer communication, and they still do. So, the conference circuit is likely to be with us for a while.