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Paul Krugman on 'Economic Geography'

A lesson I first learned reading Jane Jacobs’ The Economy of Cities:

Why does Apple manufacture abroad, and especially in China? As the article explained, it’s not just about low wages. China also derives big advantages from the fact that so much of the supply chain is already there. A former Apple executive explained: “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away.”

This is familiar territory to students of economic geography: the advantages of industrial clusters — in which producers, specialized suppliers, and workers huddle together to their mutual benefit — have been a running theme since the 19th century.

And Chinese manufacturing isn’t the only conspicuous example of these advantages in the modern world. Germany remains a highly successful exporter even with workers who cost, on average, $44 an hour — much more than the average cost of American workers. And this success has a lot to do with the support its small and medium-sized companies — the famed Mittelstand — provide to each other via shared suppliers and the maintenance of a skilled work force.

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.

Also, have you seen the related NYT piece about Apple that’s really about Foxconn but doesn’t really acknowledge that ultimately it’s really about us? For a better take on it, read this TechCrunch piece <—this is a sentence I’ve never written before in my life.