In response to Prof. Gordon's Some implications of thinking of trade as a form of technology, Paul Friesen wrote:
Actually, I think manufacturing is special in a way most economists fail to appreciate adequately. Manufacturing clusters. If you do manufacturing, you create an environment in which more manufacturing is likely to develop.
Clusters and clustering is one of the major themes in my Global Environment of Business class at Ivey. I'm giving that lecture in a couple of week so I shouldn't give my thoughts on the subject here (some of my students read this and the last thing I want or need are them parroting my thoughts back to me). However, if you're interested in the subject here is what I have my students read/think about:
Case: Globalization Threatens Canada's Auto Industry: Implications for the Economy and Society (Abstract)
Background Reading: Michael Porter – Clusters and the New Economics of Competition (PDF – I highly recommend this article).
Here's what we ask the students to discuss, though without access to the whole case it's kind of difficult to do. But I thought I'd add it anyway.
Discussion Questions:
- If the auto industry were to leave Canada, how seriously would the Canadian economy and society be hurt?
- How real is the threat that the auto industry could close most of their Canadian plants and ship most of their production to Mexico and China? Estimate cost savings and indicate the mitigating factors that might keep some production in Canada.
- Why are clusters important in a globalized world?
- Should the government support the growth of clusters? If so, why?
One thing I will say – a lot of people in both the public and private sector in both Chennai and Bangalore have bet very heavily on non-financial services being clusterable.
Worthwhile Canadian Initiative 
MM, didn’t you get the memo? This is Canada. We don’t do productivity here. Just drill, baby, drill.
Do you want discussion? Seems we might be spoiling the exercise for your students.
“Do you want discussion? Seems we might be spoiling the exercise for your students.”
I don’t mind if students parrot your ideas. I just don’t like to hear my own. 🙂
The real purpose of this piece was to link to Porter’s article. In which case, I think I buried the lede.
I guess the reason I said that economists fail to appreciate clustering adequately is that I think more about how poor countries could become richer than about how to further boost the economies of rich countries like Canada. To me, Canada is rich enough already. As far as our own economy is concerned, we would do better to think more about how to distribute the wealth better.
I think that the essential, fundamental reason that some countries are still so poor is that those are just the countries that got left out as the industrial clusters formed. I think that this idea, by itself, can explain so much of what we observe in international economics that it should be at the very centre of the subject. But, while the New Economic Geography of Krugman and others contains models describing this idea, it seems to be so far out on the fringes that it doesn’t even make it into most textbooks on “development” economics or international trade. It just seems to get stuck on top of all the growth models and other things.
I also think that, if we really want to help these countries, the central problem is how to start industrial clusters in them. Yet industrialization of the “third world” has been almost a taboo subject since the failure of the early attempts at import substitution industrialization. For decades, all efforts have been directed at agriculture, health, and other such fields. Economists seem perfectly fine with that, but to me it is a huge error. I don’t pretend to know how to start an industrial cluster where none exists, but we don’t even try. We don’t even think about it.
MM, I see one of your colleagues, Adam Fremeth, Assistant Professor, Business Economics and Public Policy group at Ivey, commenting in a ROB article today.
Alberta launches oil sands PR campaign
For those who question Alberta’s seriousness, Professor Adam Fremeth at the University of Western Ontario’s Richard Ivey School of Business said there is a good chance Alberta really means what it says. Two weeks ago he attended a conference hosted by Carbon Management Canada, based at the University of Calgary, that asked Canadian engineering and business schools to research greener oil sands innovations. Their reward? A cut of the $50-million in funding put up by the Alberta Conservatives and the federal government.
I myself am skeptical. In yesterday’s In yesterday’s G&M, Gwyn Morgan, former industry spokesman for anti-Kyoto efforts, and former CEO of EnCana (and still a significant shareholder – which he always fails to divulge), predictably steps up to the plate to defend the oil sands.
And ubiquitous talking head, Ezra Levant rants on the Sun Pages, promoting his latest oil sands book/talking points.
Looks like an organized multi-faceted pr campaign to me – the type that an outfit like Hill and Knowlton, for example, would co-ordinate.
Back to policy/clusters. How about inviting Assoc Prof Fremeth to expand on how Alberta/oil sands players might use the challenges/opportunities they face to engage other parts of the Canadian business community in order to solve the problem. A $50 million funding grant is nothing to sneeze at, but it is peanuts in the grand scheme of things. Suncor has got miles and miles of good press for investing $100 million in a windfarm years ago while continuing on, largely unabated.