If you went to an office today, you’re taking part in an obsolete lifestyle.  At least that’s what many credible theorists in the 1990s led us to expect. According to them, “telework” was poised to supplant physical offices for good. 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 videoconference would wipe out jetlag fatigue and impersonal hotel stays.

A 1990 study titled “Telework: A New Way of Working and Living” opened with these bold claims:

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

People like people…

Of course, that vision didn’t materialise. It turns out that technology has made face-to-face communication more important, not less. If this idea seems counter-intuitive, just look at the very companies that have done the most to advance the reach and capabilities of digital technologies. The emergence of Silicon Valley as the world’s foremost innovation hub illustrates a fact of human nature that transcends technology: All things being equal, people want to live close to other people with the same interest.

At the moment, the goliaths of Silicon Valley -- Google, Facebook, Amazon, and Apple -- are committing serious resources to tap into the power of proximity. All four companies are expanding their Silicon Valley campuses on a colossal scale – Apple’s $5 billion “spaceship” designed by ‘starchitect’ Norman Foster is said to be Silicon Valley’s biggest private construction project to date. The trend among vanguard companies is toward sprawling, utopian facilities that are almost cities unto themselves, far from the delocalisation and dispersal that 1990s futurists predicted.

…and they still like paper

This is reminiscent of what happened to another late 20^th-century myth, the “paperless office”. As computers made their way onto every office desk, the thinking was that soon electronic documents would take the place of paper. Decades later, companies are still producing an estimated 130 pounds of paper documents per year per worker and, according to a 2011 Gartner report, the average company’s rate of paper production is growing by 25 percent every year. This example underscores that the physical and digital realms are complementary, not opposed to one another.

A 2008 paper titled “Does Distance Matter in Banking?”, by Kenneth Brevoort and John Wolken (senior economists for the United States Federal Reserve Board), shows that for the decade 1993-2003, banking relationships in the U.S. remained primarily local, with a median distance between lender and SME of just five miles. Perhaps even more significantly, after increasing in the first half of the decade, the distance diminished in the following five years. The rise of digital data solutions may prolong and reinforce this trend, as the data-richness of lender-borrower relationships arguably increases with proximity. Even if they have extremely large databases, banks cannot afford to bypass the information on credit score, borrower characteristics etc. that local branches are uniquely positioned to collect.

To return to Silicon Valley, would Marc Andreessen, arguably the most famous venture capitalist in the tech space, endow a new entrepreneur without meeting him or her in person? Moreover, could Andreessen’s investment expertise ever be matched by financial algorithms? Clearly the answer is no in both cases, which is why we need epicentres of innovation such as Silicon Valley.

Like it or not, 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 percent of the world’s population now lives in urban areas. The world is not flat.

Amine Ouazad is Assistant Professor of Economics at INSEAD. He also has a blog.

Follow INSEAD Knowledge on Twitter and Facebook