Wednesday, March 3, 2010

Economic Gardening?

An Op-Ed in today's Oregonian (not yet on-line so I have to go by memory here) by Brent Barton, Bob Jenson and Jefferson Smith promotes the idea of "economic gardening." This is a wonderfully evocative term, but the piece offers few specifics. Personally, this kind of public-policy mumbo-jumbo drives me nuts because it sounds so right yet means so little. In fact this is precisely what caused be to choose economics as a career: other disciplines frustrated me with the lack of specifics while economics excited me with its precision.

As much as I can figure out, the idea is that we make it as easy as possible for businesses to start up in our communities, and this is anything but a new idea. But if it were that easy we would not need to keep coming up with more and more wonderful terms to extoll its virtues. The problem in Oregon is not the bureaucratic environment - in most measures of business friendliness Oregon scores near the top - the problem is in the fundamentals, like education, where Oregon scores near the bottom.

Littleton, Colorado is an interesting example that was chosen to illustrate the 'economic gardening' idea.  Littleton exists in a sea of highly educated people, other high tech companies and institutions of higher education.  The Denver-Boulder metro area has a pretty good human capital infrastructure, in other words, which makes it easier for a new company to succeed.  I talked about this in my recent posts on agglomeration externalities.

The problem with agglomeration externalities is that they are not easy for policy makers to create by 'choosing' industries or businesses to promote.  So what I would like to see are policy makers, like the Op-Ed's authors, focus on the fundamental things that matter and stop trying to engineer economic prosperity.

As an aside, my attraction to economics is echoed by Paul Krugman in an interesting biographic piece in The New Yorker:

...Krugman went to Yale, in 1970, intending to study history, but he felt that history was too much about what and not enough about why, so he ended up in economics. Economics, he found, examined the same infinitely complicated social reality that history did but, instead of elucidating its complexity, looked for patterns and rules that made the complexity seem simple. Why did some societies have serfs or slaves and others not? You could talk about culture and national character and climate and changing mores and heroes and revolts and the history of agriculture and the Romans and the Christians and the Middle Ages and all the rest of it; or, like Krugman’s economics teacher Evsey Domar, you could argue that if peasants are barely surviving there’s no point in enslaving them, because they have nothing to give you, but if good new land becomes available it makes sense to enslave them, because you can skim off the difference between their output and what it takes to keep them alive. Suddenly, a simple story made sense of a huge and baffling swath of reality, and Krugman found that enormously satisfying.

The article also touched on his contribution to economic geography:

Later on, Krugman became interested in economic geography, in the related question of why there were regional specialties—why, in the United States, for instance, were cars produced in Detroit, carpets in Dalton, Georgia, jewelry in Providence, and chips in Silicon Valley? Again, the answer turned out to be history and accident. Once an industry started up in one place, for whatever reason (the carpet industry in Dalton appears to have its origin in a local teen-ager who in 1895 made a tufted bedspread as a wedding present), local workers became trained in its methods, skilled workers from elsewhere moved there, and related businesses sprang up close by. Then, as more skilled labor became available, the industry could grow and benefit from economies of scale. Soon, as long as it didn’t cost too much to transport the industry’s products, the advantages of the place would be such that it would be impractical for someone to open up a similar business anywhere else. Many economists found the idea that economic geography could be so arbitrary “deeply disturbing and troubling,” Krugman wrote, but he found it exciting.

This is essentially my point - it is impossible to predict which industries will thrive, so let's not try and create a local economic focal point, let's get the fundamentals right so one will spring up.

1 comment:

Chris Gibbons said...

I thought this might be of interest to you.

Chris Gibbons