Light trails made by traffic passing around the Old Street roundabout, also referred to as 'Silicon Roundabout,' in the area known as 'Tech City' at dusk in London, U.K., on Friday, Jan. 15, 2016. Growing peer-to-peer lending and online money transfer services helped raise a record $3.6 billion in venture capital funding for the U.K.'s technology sector last year, according to data compiled by London & Partners. Photographer: Chris Ratcliffe/Bloomberg
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Technology companies talk in dizzying terms about setting humanity free from the office, connecting us seamlessly and virtually so that we can work anywhere.

But it is worth paying attention to what they do, not what they say. From Silicon Valley in the US to Silicon Roundabout in London, tech companies pay a hefty price for physical offices in very particular spots on the map. In the London postcode EC1V, home to Silicon Roundabout industry hub, there are 3,228 tech companies per square kilometre, compared with 58 per square kilometre across the city as a whole. So much for technology liberating us from geography.

Liad Shababo, founder of a start-up called Wollit, has been chewing over this paradox. He will probably rent an office in Silicon Roundabout soon, even though it is an inconvenient journey from where he lives.

There are a couple of reasons why he thinks it still makes sense. First, he says when starting a tech company — or any company — founders can only really “get things cranking” if they are all in the same physical space, “in the trenches together from day one”.

Investors know this too. “If you were to tell an investor, ‘I’m raising money for a new start-up and my team is remote — I’ve got a developer in Istanbul, a designer in Korea’ they would look at that very unfavourably,” Mr Shababo says. “They want to see there’s a cohesive team who buy into this vision and are really committed.”

Second, if you want to work with good people, you have to go to where they are — and where they are in London is Silicon Roundabout. “All the staff can change jobs without changing their lifestyle, I can pop to the marketing company’s office without wasting half my day, after work I can meet people for drinks, or I can go to a mixer [networking event],” Mr Shababo adds.

He is describing the economics of agglomeration. Economists have long observed that when companies cluster physically together, they tend to be more productive. They collaborate, they compete, they swap staff and ideas. London is the perfect example. Productivity in the capital is 32 per cent higher than the UK average. Within almost every industry in the economy, workers in London generate more output than workers based elsewhere.

This can create a virtuous circle. Because the best companies and the best jobs are in London, the most ambitious young people move there, even though it means living in cramped rented flats well into their 30s. Salaries may be 33 per cent higher in London but the cost of living is 60 per cent higher. Undeterred, just under a quarter of recent graduates move to the capital each year.

The puzzle is that as technology has improved, enabling work to be done remotely, the power of physical agglomeration does not seem to have lessened. Jonathan Portes, an economics professor at King’s College London, remembers being told as a child that the new invention of fibre optic cable would “destroy cities”. He adds: “The sci-fi techno optimism was that we’d all be able to work from anywhere.”

Plenty of companies have allowed people to work from home, outsourced some of their activities overseas, or set up satellite offices away from major cities. But many executives, even ones who enthuse about the merits of “agile work”, say privately that it would not be suitable for their most “core” staff.

Research suggests that if you want to be promoted into a core role, putting in “passive face time” still matters to bosses. Studies by academics Kimberly Elsbach and Daniel Cable have found that people who work remotely can receive lower performance evaluations, smaller pay rises and fewer promotions, even if they work just as hard. This is often the result of unconscious decisions by managers, who associate someone’s physical presence in the office with traits like “commitment” and “reliability” without necessarily realising they are doing it.

Some executives in technology companies think the problem is that the tech is still not yet good enough. Email, phone and video calls are not truly seamless. Wait until we have virtual reality, they say. That could be the technology that truly liberates us from the office.

Prof Portes is not convinced. “I’m sure virtual reality will happen and it will make some things much easier, [but] we have had a tremendous amount of technological innovation already which hasn’t reduced the relative value of geographical vicinity,” he says. “If anything it seems to have gone the opposite way. I don’t think we fully understand why, but I’m not particularly inclined to believe that more innovation in itself is going to change that.”

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