Saturday, January 28, 2012

Individuals do matter

In the above article from Mr. Krugman in the NY Times, Mr. Krugman takes offense at Mitch Daniel's characterization of Steve Jobs as a jobs creator in his GOP rebuttal to the State of the Union address.

His main point seems to be this quote:

"The point is that successful companies — or, at any rate, companies that make a large contribution to a nation’s economy — don’t exist in isolation. Prosperity depends on the synergy between companies, on the cluster, not the individual entrepreneur. "

The idea of agglomeration economies is indeed old-hat in the world of economics. It makes intuitive sense that similar companies located in the same area can share suppliers, a skilled labor force, pertinent natural resources, etc. and that these advantages along with spillover effects and collaboration can lead to more innovation and increased output.

But when Mr. Krugman says that it is not the individual entrepreneur who matters, but the cluster, he begs the question, how/why did this cluster form? Was it written in the heavens that Detroit would be the Motor City? That Silicon Valley would be the high tech capital of the world? That LA would be the center of the film industry? While natural resources play an obvious part in the formation of many agglomeration economies (see Texas, oil) , the fact that Detroit became the motor city instead of say Chicago does not seem to be a forgone conclusion. It seems to me that individuals matter, and Henry Ford's birth near Detroit was vital in Detroit becoming the center of the American auto industry.

I am sure that there are other examples of this as well, places that became known for an industry due to the ingenuity and creativity of a few intelligent and hardworking entrepreneurs, who started their work long before the agglomeration economies that later built up around these industries were in place.

It is interesting to read articles by Mr. Krugman, who for whatever reason seems to loathe the individual. His work often talks of society, collectivism, and the common good, putting these ideas above individual freedom, entrepreneurship, and personal liberty. His apparent belief in the "it takes a village to raise an industry" idea is just another example.

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