Wednesday, September 28, 2005

Clusters of innovation, cluster nuclei, Utah and the Gulf.

In the past few posts, I have been talking about other peoples research. Since Phil Windley was kind enough to mention Central Exchange in his blog, I thought it might be nice to mention my research into clusters of innovation, national competitiveness, and how I first met Phil.

I read a lot of academic papers from other countries. At the time, I worked for a Wall Street firm and I used that reading to trace the flow of new ideas from academia into corporations, hoping to spot some investment opportunities.

A few years earlier, Michael Porter had defined clusters as “geographically proximate groups of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities”, which is a fancy way of saying some geographic areas are really skilled at a particular set of trades, something any student of history notices immediately. Encouraging clusters soon became very popular among governments, which apparently need to be told before they notice that sort of thing.

And I had noticed that myself, except that the cluster weren’t centered on institutions, or companies, they were centered on specific people.

You think that such people would be human fireworks, sending off sparks of innovation like skyrockets. Turns out that wasn’t the case.

Oh, they were usually pretty smart, but the one thing they all had in common was that they often made everyone else around them more ambitious; smarter, faster, more inventive, .. better.

I had identified a few of them in Europe, and I decided to see if I could find the ones here in America, and goose them into taking action. You see, a lot of those sorts of people had been successful entrepreneurs in the 1990’s, and had retired by the time of the recession, when America needed them the most.

Which lead me to Utah. I had long noticed that Utah was very atypical, having far more concentration of innovation and talent than I would have expected. I decided to find out who the cluster nucleus was that was in the middle of that…which is where I met Phil Windley.

I have watched Phil over the years, and Utah; and a bunch of other states, including Nebraska, New Jersey and my own Illinois.

Y’know, I like Nebraska, wonderful people, great senators (Hagel, Nelson) and, in general the sort of place I would have liked to move to. Unlike Utah, however, it’s almost dead, in the technological innovation sense.
  
Not that they aren’t pretty good, technology wise, there. Over the years I have come to know quite a few of the techies in the area.

My opinion is that they don’t have a cluster nucleus to get them started down the path.

My other home state, New Jersey, had a whole bunch of cluster nuclei.   For example a lot of companies in my area can be traced back to a small group of people.

It’s different here in Illinois. Start ups require a lot of political clout to survive, and that’s in short supply for techies, so we don’t have much innovation here.  

If we want to solve the problems unveiled in Katrina and Rita’s wake, we need to get cluster nuclei into the area, and give them enough clout and presence to have an effect.
That’s what I meant by collective action, and that’s why I suggested a sort of “peace corps” for the Gulf.

A cluster nucleus doesn’t need much more than a chance to have an effect, but, in my experience, it is really easy to stop them cold, using politics, and that’s what usually happens. So we can toss all the money we want into the Gulf, but unless we do something more, nothing is going to change. I am hoping a “peace corps” for the Gulf will fulfill that function.

Tuesday, September 27, 2005

Greenspan, economic flexibility and institutional economics

Greenspan just gave a speech about economic flexibility. http://www.federalreserve.gov/boarddocs/speeches/2005/20050927/default.htm

Essentially, he is saying America should respond to an economic shock by doing nothing, especially not protectionism. The economy will take care of itself.

Pretty much what the rest of the world is saying, for example, Australia:

http://globalmarkets.commbank.com.au/GAC_File_Metafile/0,1687,6630%255Feconomic%252520perspective%25252026%252520sep%25252020051,00.pdf

The market loved it, it went up

http://www.wachoviasec.com/home/news.asp?pageid=2&date=09/27/2005&time=16:09&source=Reuters&storyid=1127851772nN27235565

Of course, the market is people whose interests don’t align with America’s. I get nervous when people like that start reacting favorably to an American officials speech.

Greenspan is right, as far as the domain he is considering (central banking theory).

Another, mainstream branch of economics (new institutional economics) has studied these issues extensively,

Institutions are the social and contractual norms for an economy; the ultimate origin of that invisible hand Greenspan thinks is protecting the markets. New Institutional economics studies the relationships between institutions and the economy.

It is beyond the scope of this blog to explain NIE, (google Greif or Mahgribi to get some ideas) but the upshot is. It’s a “destroy the village to save it “ scenario

http://econ-www.mit.edu/faculty/download_pdf.php?id=766

Greenspans policies will work., at the cost of abandoning a significant percentage of the American population and destroying the institutions they are part of. Greenspans okay with creative destruction, it isn’t any institutions that affect him, but there remains two questions.

The first is best illustrated by what happened when this sort of policy was applied to the airline industry.

http://www.webshells.com/cgi-bin/pushitback/ib/cgi-bin/ib.cgi?action=read&id=291&directory=

http://www.atwonline.com/channels/airlineFocus/article.html?articleID=1159

Some customers benefited, some lost. Problem is, the central tenet of a democracy is that all members are equal in the view of the state. Can America survive classifying large numbers of citizen’s institutions as second class, regardless of the good intentions of the policy?

The second is practical. The underclass just has millions of new members added to it. Just how many do we need to add before we end up with an Iraqi style civil war or 1960’s style riots?

I’m scared. I remember the 1960’s riots. They involved a LOT less people than we are talking about here.

Monday, September 26, 2005

Poverty reduction in the Gulf

Lets get a few definitions straight first.

  • Poverty is defined as not having wealth or possessions.

  • Substance abuser is defined as dependence on an addictive substance.

  • Criminal is defined as having committed or been legally convicted of a crime.

  • Pregnant is defined as carrying developing offspring.

Do you see any relationship between those definitions? I don’t.

They are four separate groups that happen to share some members. There is currently a national debate about reducing membership in the poverty group, and debates about the other three groups somehow keep on getting mixed up in it.

So lets just talk about poverty reduction without involving the other three groups.

I was reading an interesting paper “Property Rights, Collective Action and Poverty:
The Role of Institutions For Poverty Reduction”” last night. http://dlc.dlib.indiana.edu/archive/00001549/00/DiGregorio_Property_040702_Paper443.pdf , . It’s a serious analysis in the “new institutional economics” tradition that has a lot to say about the role collective action and property rights play in poverty reduction.  

I won’t go into details (read the paper) but here’s what I took away from it.

The “moral superiority/rich mans burden” approach is not going to help (Has that approach EVER worked in the history of the human race?).

The public grants approach isn’t going to help. Its been tried.

The private charities approach isn’t going to help. It’s also been tried.

The only proper approach is collective action. Louisiana just applied for a 40 billion federal grant to that effect. http://www.washingtonpost.com/wp-dyn/content/article/2005/09/25/AR2005092501413.html?nav=rss_print/asection

Here’s the problem”.

“…Almost all the other members of the group were lobbyists from firms such as Patton Boggs, Adams & Reese, the Alpine Group, Dutko Worldwide, Van Scoyoc Associates, and a firm owned by former senator J. Bennett Johnston (D-La.). There was a lobbyist for the Port of New Orleans, a lobbyist for Verizon, and three lobbyists who were former aides to House Transportation and Infrastructure Committee Chairman Don Young (R-Alaska).”

In other words, the collective action is not by the poor.

Here is what I think should happen.

Young is no fool. He also isn’t such a bad guy in a crunch (at least from what I have seen on CSPAN). An area of America much larger than Europe (and several percent of the total population and GNP) has been totally devastated and he probably realizes that now isn’t the time for appropriations manipulation. The survival of the country as a first world nation is at stake.

So all the money will be approved, but the specifics will be stripped out. Now here is the tricky part.

Up until now, the Secretary of Labor, Elaine Chao, has been mostly an invisible figurehead. Safe enough, the Department of Labor pretty much runs itself, anyhow. But she has a background in the Peace Corps, and doesn’t appear to be all that bad a person either.

Peace corps. That’s the key point.  Peace corps is all about the kind of collective action by the poor that the paper seems to indicate will induce poverty reduction. I mean, they go in and teach the locals how to better themselves. Isn’t that what the Gulf poor need? Not charity, not welfare, jobs and a future.

And if anyone knows how to take the poor and teach them useful skills, it’s the Army; including the Army corps of engineers.

So if the $40 billion goes to the Department of Labor to establish a “peace corps” (mentored by the army corps of engineers) in the gulf, to help the locals rebuild the area, there’s a chance it might actually reduce poverty.

It all depends if Bush, Chao and the Republicans step up to the plate. I think they will. The downside of having control of both houses and the presidency is that history will hold them responsible if America collapses under their watch.

On the other, I might be completely wrong. What do you readers think?