The Industry choice

[Eric Pederson]

Alex Martelli commented:


> It's not just _foreign_ companies -- regional clustering of all kinds 
> of
> business activities is a much more widespread phenomenon.  Although I'm
> not sure he was the first to research the subject, Tjalling Koopmans, 
> as
> part of his lifework on normative economics for which he won the Nobel
> Prize 30 years ago, published a crucial essay on the subject about 50
> years ago (sorry, can't recall the exact date!) focusing on
> _indivisibilities_, leading for example to transportation costs, and to
> increasing returns with increasing scale.  Today, Paul Krugman is
> probably the best-known name in this specific field (he's also a
> well-known popularizer and polemist, but his specifically-scientific
> work in economics has mostly remained in this field).
> 
> > China right now)? According to standard economics it should
> > not happen - what's the point of getting into this overpriced
> > city if elsewhere in this country you can find just as good
> > conditions for business. 
> 
> Because you can't.  "Standard" economics, in the sense of what you 
> might
> have studied in college 25 years ago if that was your major, is quite
> able to account for that if you treat spatial variables as exogenous to
> the model; Krugman's breakthroughs (and most following work, from what 
> I
> can tell -- but economics is just a hobby for me, so I hardly have time
> to keep up with the literature, sigh!) have to do with making them
> endogenous.
> 
> Exogenous is fine if you're looking at the decision a single firm, the
> N+1 - th to set up shop in (say) a city, faces, given decisions already
> taken by other N firms in the same sector.
> 
> The firm's production processes have inputs and outputs, coming from
> other firms and (generally, with the exception of the last "layer" of
> retailers etc) going to other firms.  Say that the main potential 
> buyers
> for your firm's products are firms X, Y and Z, whose locations all
> "happen to be" (that's the "exogenous" part) in the Q quarter of town.
> So, all your competitors have their locations in or near Q, too.  Where
> are you going to set up your location?   Rents are higher in Q than
> somewhere out in the boondocks -- but being in Q has obvious 
> advantages:
> your salespeople will be very well-placed to shuttle between X, Y, Z 
> and
> your offices, often with your designers along so they can impress the
> buyers or get their specs for competitive bidding, etc, etc.  At some
> points, the competition for rents in quarter Q will start driving some
> experimenters elsewhere, but they may not necessarily thrive in those
> other locations.  If, whatever industry you're in, you can strongly
> benefit from working closely with customers, then quarter Q will be
> where many firms making the same products end up (supply-side
> clustering).
> 
> Now consider a new company Z set up to compete with X, Y and Z.  Where
> will THEY set up shop?  Quarter Q has the strong advantage of offering
> many experienced suppliers nearby -- and in many industries there are
> benefits in working closely with suppliers, too (even just to easily
> have them compete hard for your business...).  So, there are easily
> appreciated exogenous models to explain demand-side clustering, too.
> 
> That's how you end up with a Holliwood, a Silicon Valley, a Milan (for
> high-quality fashion and industrial design), even, say, on a lesser
> scale, a Valenza Po or an Arezzo for jewelry.  Ancient European cities
> offer a zillion examples, with streets and quarters named after the
> trades or professions that were most clustered there -- of course, 
> there
> are many other auxiliary factors related to the fact that people often
> _like_ to associate with others of the same trade (according to Adam
> Smith, generally to plot some damage to the general public;-), but
> supply-side and demand-side, at least for a simpler exogenous model, 
> are
> plenty.
> 
> Say that it's the 18th century (after the corporations' power to stop
> "foreign" competition from nearby towns had basically waned), you're a
> hat-maker from Firenze, and for whatever reason you need to move
> yourself and your business to Bologna.  If all the best hat-makers'
> workshops and shops are clustered around Piazza dell'Orologio, where 
> are
> YOU going to set up shop?  Rents in that piazza are high, BUT - that's
> where people who want to buy new hats will come strolling to look at 
> the
> displays, compare prices, and generally shop.  That's close to where
> felt-makers are, since they sell to other hat-makers.  Should your
> business soon flourish, so you'll need to hire a worker, that's where
> you can soon meet all the local workers, relaxing with a glass of wine
> at the local osteria after work, and start getting acquainted with
> everybody, etc, etc...


Right, and distribution in general is "clumpy"; i.e. one doesn't find the spatial distribution of people to be uniform (unless at saturation!)

I'm decades behind on economics research, but I remember modeling clustering based on mass and distance (the gravity model).  On a decision making basis there seems to be an aspect of it that is binary: (0) either give in to gravity and gain shared advantage as part of a massive object, or (1) choose an alternate "location" far enough away not to be much affected by the force of the massive objects, and try to build "mass" there.  I suspect Python is a (1) in that regard, but I may be wrong.


Gravity as a model of technology adoption appeals to me as I've been thinking about cosmology a fair bit, and I have grave suspicions that much of the universe's dark (and green) matter is in Redmond.




Eric Pederson
http://www.songzilla.blogspot.com
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