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The tech community is congenitally allergic to bureaucrats, governments, and institutions of all kinds. Respected, even revered, entrepreneurial leaders like Peter Thiel can make statements like, “I no longer believe that freedom and democracy are compatible” with hardly an eyebrow raised among the West Coast technorati.

Unfortunately, our national institutions haven’t done much lately to challenge that pessimistic view.

The PRISM debacle, up to and including Edward Snowden’s ironic asylum flight to Russia, is just the latest chapter in a decade-long saga of federal sclerosis, partisan squabbling, and a general abdication of national leadership. The anticipated spiking of bipartisan, and entrepreneur-friendly, immigration reform by the House of Representatives is another painful example of how partisan politics seem to be preventing the Federal government from acting in the national interest.

So if our national institutions can’t get out of their own way, does our fate as a people rest on the shoulders of entrepreneurs alone?

Thankfully not.

As Kirk Cheyfitz recently pointed out, corporate profits are extracted from the wallets of the middle class. If the federal government can’t find a way to invest productively in the critical infrastructure of a functioning society — primary education, roads and airports, basic healthcare, laws and their enforcement — that society will gradually cease to function. When that happens, the purchasing power of the middle class, and the profits that go with it, will disappear.

This is happening already.

It’s still largely invisible to the residents of Atherton and Pacific Heights but painfully obvious to workers in less fortunate zip codes. Our global population continues to grow — we just passed 7 billion and 8 is already in sight — while software-powered automation continues to shrink the global labor pie (at a rate of acceleration approximating Moore’s Law). Corporate profits are still growing, but job growth is flat, and it’s likely to stay that way.

Startups and markets alone won’t fix this math, and without the moderating influence of effective social institutions, they’ll likely make it worse. But if the Feds can’t do it, and Libertarian-leaning entrepreneurs won’t do it, who will fill the gap?

According to a growing body of influential analysts, the surprising answer is: City Hall.

This isn’t a new idea. Brad Feld’s “Startup Communities” is a manifesto for city-level economic development coming from inside the tech innovation community. Slightly further afield, respected macroeconomic theorist Venkat Rao penned an excellent three-part series for Forbes positing (among many other things) the return of a “Global City-State Economy”:

The failure of nation-state and region-based geopolitics will be remedied not by some miraculous reformation sweeping across the world, but a shift of power, in the political sphere, to cities.

But if VCs and bloggers aren’t authoritative enough for you, take it from venerable Beltway think-tank The Brookings Institution; the title of their most recent book-length release pretty much sums up their take: “The Metropolitan Revolution: How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy.”

So the world is going hell, and trading federal bureaucrats for city bureaucrats will somehow make it all better?

No, or at least, not exactly. Here’s the somewhat-more-complicated logic at work:

  • As open source, cloud, and mobile platforms continue to drive the cost of innovation to zero, individual creativity and talent are becoming more economically important than access to capital and institutions.

  • As creative individuals have become more empowered, the unit of organization for innovation has also shifted from the firm to the individual (in the first degree) and the city (in the second). Smart, creative people want to be with other smart creative people — they also want their kids to go to school with a diverse mix of intellectually curious kids. Cities just happen to be where the action is.

  • Well-led cities anticipated this shift and are investing in infrastructure, services, and institutions relevant to innovators and their families. They’re also actively promoting their markets as destinations for high-performing entrepreneurs independent of any existing company or sector in that community.

  • The city-states with the best odds of competing successfully in this new reality will be those that can develop, attract, and retain an “unfair” share of the global pool of talent and capital. The cities or regions that optimally serve the full range of human needs — not just narrow economics — will be the ones that win the long-term battle for talent and global economic relevance.

So city government is part of the solution but not the whole story.

Mayors (and many city councils) control important stuff — transit and transportation, public schools, zoning and land use, to name just a few — that wind up mattering a lot to local residents. But deploying those powers in ways that develop, attract, and retain human capital requires deep engagement from the community. If a broad base of civic leadership doesn’t participate in the City’s planning — from entrepreneurs and investors, to educators and non-profit leaders, real-estate developers, labor and community advocates — those levers often aren’t pulled in the most productive ways.

Why don’t all these interests get mired in the same partisan gridlock that has so constipated the federal government?

As former House Speaker Tip O’Neill famously observed, “All politics is local.”  When people live and work in the same neighborhoods, send their kids to the same schools, and eat in the same restaurants, partisan differences take a backseat to bread-and-butter issues like jobs, safety, and quality of life. Communities that focus on social mobility and quality of life for the entire community — like San Francisco and Seattle, according to this recent study — tend to have better luck at keeping everyone at the table.

From my own limited experience with civic engagement — first as a Board Member of the Washington Technology Industry Association, and more recently as Chair of the City of Seattle’s Economic Development Commission — I’ve witnessed a remarkable degree of cooperation and compromise among folks spanning the far-distant poles of political affiliation. This is particularly true whenever significant impacts to local or regional competitiveness are at stake.

But San Francisco is already the global leader in innovation. Can’t we leave this fuzzy-headed civic crap to second-tier cities like Seattle and get on with making money?

Yes, you can — for a while anyway. But as Sarah Lacy offered up last year in a particularly heated piece about Ron Conway’s sf.citi partnership with Mayor Ed Lee:

I’ve long thought it was bizarre that Silicon Valley holds up people who can create huge companies out of nothing as heroes, and San Francisco tears them down as juicy targets who owe the city their whole coffers in tax revenues for the pleasure of living here and driving on its pot-hole ridden streets.

Cities matter. Culture matters. And neither come into being via the heroic individual contributions of Randian supermen. Sometimes leadership requires people to put down their individual politics and personal economics to contribute to something bigger than themselves. And the cities that see that — and do that — are going to dominate the global economy for the next 50 years.

As Winston Churchill once observed, “The empires of the future are the empires of the mind.”

[Image courtesy guillermogg]