Where Do Clusters Come From?

Economic clustering, or the theory that industries or segments of industries agglomerate around certain locations, is as novel an idea as it is ambiguous. In particular, the empirical evidence supporting clustering lacks in universal applicability, as scholars and businessmen attempt to explain the genesis of many regions in parochial terms incapable of replication–such as the birth of Hollywood or Wall Street. But is clustering, and in general economic development, more than just the random, unpredictable rise and fall of cities and communities? Or does a complete theory of clustering involve common variables that may be targeted across regions, regardless of economic status or other constraints?

Brett Staron leads GCG in an exploration of where clusters come from in this Catalyst Conversation.

The roundtable discussion identified what has been the traditional role of government in economic development and how does this paradigm shift with the clustering approach and where did Wall Street, Hollywood, or Silicon Valley come from. GCG also discussed if clusters more amenable to new industry versus existing industry.

Other guiding questions included:

• What have been some of the common academic or educational variables leading to clusters around the world?
• Why do smart people move to “smart” cities?
• What would a workable model of economic development achieved through clustering driven external preconditions (land, location, climate, etc) look like?
• What is the role of entrepreneurs in catalyzing clustering?

Please login for the supporting material and the full conversation.

The Global Catalyst Group examines the relationship between cheap credit and the housing market. Further, GCG discusses the implications of a post-cheap credit society in the United States.

Questions include:

• How important is the health of the housing market?
• How important is the velocity of money (The ability for easy lending/spending)?
• What will the changes in the economic landscape do to the political landscape?

The following materials were discussed to support our conversation:

The 2009 Outlook: Nouriel Roubini (NY Stern School of Business)

http://www.youtube.com/watch?v=51SxmcaKJIw

Libertarians: A third party? *Please excuse the political undertones (feel free to skip the last 1min and 30 seconds)

http://www.youtube.com/watch?v=k1PoDidwUEA

The State of the Economy: A look into the American Recovery and Reinvestment Plan

Prepared by: Alex Johnston and Donald Ball

Obama’s new stimulus plan holds great promise to reinvigorate the economy, but at what cost? The Global Catalyst Group dissects some of the proposed funding measures in his plan. Two main questions are answered:

• Which funding proposals are most likely create the greatest return for the American people and why?
• Which funding proposals are most likely create more problems than they solve and more importantly, how could they be improved?

An effective proposal results in both long and short term returns as well as the creation of not only new jobs, but new industries, and increased competitiveness rather than complacency; this all while minimizing any of the five major traps associated with fiscal stimulus:

The major traps of using fiscal policy (direct government stimulus) are:

• It expands the responsibilities of government into areas that could be more efficiently handled by the private sector,
• It provides additional services that voters become dependent on and increasingly unwilling to part with (these are known as entitlements (ie: medicare or social security),
• It increases government bureaucracies, which historically are very difficult to dismantle,
• It drives government into a destabilizing deficit cycle which can lead to currency collapse,
• It can give inferior industries or technologies an unnatural competitive edge that then become hard to wean off government support (ie: ethanol or the highly subsidized American steel industry)

The following material was discussed to support our conversation:

The American Recovery and Reinvestment Plan:

http://online.wsj.com/public/resources/documents/AmericanReinvestment2009115.pdf

Members selected one proposal in the plan to share with the group that they determined to be an effective fiscal policy and select a second proposal that they suspected will be ineffective.

For the effective proposal, the Global Catalyst Group sought to answer:

• What are the key success factors to the proposal (think return on investment, future growth, and industry spillover effects)?
• Why does this proposal create the greatest return for the American people?
• Can the proposal’s method or approach serve as a larger model for fiscal policy?

For the ineffective proposal, the Global Catalyst Group sought to answer:

• What components of the proposal lead to an ineffective allocation of American dollars?
• What would you specifically change about the proposal to make it an effective stimulus?

Historical Lessons Learned from 1907, 1929, 1987 and 2001
Prepared by: Ryan Coleman and Kevin Walsh

Guest: Peter Anderson

GCG explores the causes of the Panic of 1907, Crash of 1929 and the Bubble of 2001 to uncovered key lessons learned. Based on historical knowledge and precedence, GCG explored the various opportunities that were capitalized on after each “Bust” and attempts to identify and determine the major opportunities that exist after the 2008 Credit Crash.

Key questions include:

• What major themes are present throughout the the four different periods?
• What were the key triggers of each of the events?
• What opportunities were taken advantage of and profited from after the bust?
• Looking forward what major opportunities exist after the events of 2008?

Supporting material:

Causes of the Panic of 1907:
http://www.progress.org/2007/fold505.htm

Cause of the 1929 Crash

The Cause

There are five proposed reasons as to why the stock market crashed. One of the reasons was that stocks were overpriced and the crash brought the share prices back to a normal level. However, some studies using standard measures of stock value, such as Price to Earning ratios and Price to Dividend ratios, argue that the share prices were not too high. Another reason is that there were massive frauds and illegal activity in the 1920’s stock market. However, evidence revealed that there was probably very little actual insider trading or illegal manipulation. (1929…

Margin buying is another reason why people believed that the crash happened. Though it is not the main reason, there was very little margin relative to the value of the market. The new President of the Federal Reserve Board, Adolph Miller, tightened the monetary policy and set out to lower the stock prices since he perceived that speculation led stocks to be overpriced, causing damage to the economy. Also, in the beginning of 1929, the interest rate charged on broker loans rose tremendously. This policy reduced the amount of broker loans that originated from banks and lowered the liquidity of non-financial and other corporations that financed brokers and dealers. Lastly, many public officials commented that the stock price was too high. Herbert Hoover publicly stated that stocks were overvalued and that speculation hurt the economy. Hoover’s statement suggested to the public the lengths he was willing to go to control the stock market. These kinds of statements encouraged investors to believe that the market would continue to be strong, which could be one of the causes of the crash. (1929…

The Crash and The Depression

After the crash, production fell nearly 50% from the business cycle peak in August 1929 to March 1933. Meanwhile, the overall price level of stocks dropped by about 1/3. Many people blamed the crash for the economic collapse. Some people held responsible, fairly or not, were President Hoover, brokers, bankers, and businesspersons. The cause of the depression cannot be linked to one individual or even a group of people. It is also unlikely that the crash of the market would have been large enough to lead the US economy into the depression by itself and to sustain the downward spiral in business activity. (1929…

The Cause of the 1987 Crash
http://hnn.us/articles/895.html

2001 Dot.com Bubble Bust
http://www.businessweek.com/bwdaily/dnflash/july2000/nf00721d.htm

Can introducing a laptop to every child foster educational as well as economic growth in developing nations?

Prepared by Marcus Howard and Srujan Linga

There is no doubt that there is a large education gap between the established and developing nations of the world. One Laptop Per Child (OLPC) attempts to begin closing this gap by introducing technology to students in rural nations through the implementation of a $100 laptop to every student. Started by Nicholas Negroponte, director of the Media Laboratory at MIT, their mission is to empower the child of developing countries to learn by providing one connected laptop to every school-age child. Started in 2005, OLPC has provided just over 500,000 laptops to children in Africa, Asia, and parts of Europe.

While ambitious in their mission; their initiative has not been without setbacks. OLPC has been fraught with several financial, political, and structural pitfalls. First, widely marketed $100 price point for the laptop costs them just under $190 to produce. Second, while the technology may be present in many of the OLPC classrooms, there are few teachers trained sufficiently enough to utilize the technologies and/or to help students troubleshoot. Third, many object that OLPC’s approach to education does not take into account the varying cultural and political norms and attempts a “one size fits all” approach to education and technology. Finally, OLPC is facing an increase in competition by companies like Intel due to demands by consumers in developed nations for a cheaper laptop.

Education is quickly growing to be a priority not only in developing nations but in the United States as well. Given the vast availability of free technology that spans every area of education, providing a free laptop to children in developing countries can potentially provide great value to everyone involved. Is OLPC a viable solution to this very pertinent problem?

Video 1: http://www.youtube.com/watch?v=cM77C2ejTw&feature=player_embedded

Video 2: http://www.youtube.com/watch?v=qMeX2D4AOjM&feature=player_embedded

Finding a solution:

Education in developing countries should be a priority. While OLPC has served as an ambitious foundation to tackling the problem there is still more work to be done.

During our conversation, the Global Catalyst Group discussed:

• How can we further utilize open source software and technology to enrich the educational experience of students in developing countries?
• What are some ideas to combat the “One size fits all” approach that serves as one of the major objections to the OLPC model?
• Is there real “value added” in providing laptops to children in developing nations when the teachers haven’t the training or educational experience to masterfully navigate through the technology?
• Is technology truly the answer to the growing educational gap between developing and established nations?

Below are some additional resources to help with learning about the project, it’s progress, and some of its setbacks.

The OLPC website:

http://laptop.org/en/

Keynote by Nicholas Negroponte on OLPC

http://www.netevents.tv/video/nicholas-negroponte-presents-olpcs-100-dollar-laptop

Meeting #7: The Long Tail Theory vs. The Choice Paradox

This weeks topic will discuss two conflicting theories and the business models supported by each theory. As a group, we will evaluate the Long Tail Theory and The Choice Paradox. Both theories offer great insight into different business models and produce different approaches toward business.

Long Tail Theory:
Original article: http://www.wired.com/wired/archive/12.10/tail_pr.html

Good old wikipedia offers a summary:

The Long Tail Theory developed Chris Anderson describes the niche strategy of businesses, such as Amazon or NetFlix, that sell a large number of unique items, each in relatively small quantities.

The distribution and inventory costs of these businesses allow them to realize significant profit out of selling small volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items. The group comprising a large number of “non-hit” items is the demographic called the Long Tail.

Given a large enough availability of choice, a large population of customers, and negligible stocking and distribution costs, the
selection and buying pattern of the population results in a power law distribution curve. This suggests that a market with a high freedom of choice will create a certain degree of inequality by favoring the upper 20% of the items (“hits” or “head”) against the other 80% (“non-hits” or “long tail”).

The Long Tail concept has found a broad ground for application, research and experimentation. It is a common term in the online business and mass media, but also of importance in micro-finance, user-driven innovation, social network mechanisms, economic models, and marketing.

The Choice Paradox:
TED Video on the premise of the Choice Paradox:

http://www.ted.com/index.php/talks/barry_schwartz_on_the_paradox_of_choice.html

White Paper attached:

http://drop.io/meetingchoice

The Paradox of Choice – Why More Is Less is a 2004 book by Barry Schwartz. In the book, Schwartz argues that eliminating consumerschoices can greatly reduce anxiety for shoppers. Reccomended by Kevin Pereira.

Autonomy and Freedom of choice are critical to our well being, and choice is critical to freedom and autonomy. Nonetheless, though modern Americans have more choice than any group of people ever has before, and thus, presumably, more freedom and autonomy, we don’t seem to be benefiting from it psychologically.

In summary, observed in many cases is the paradox that more choices may lead to a poorer decision or a failure to make a decision at all. It is sometimes theorized to be caused by analysis paralysis,  real or perceived, or perhaps from rational ignorance.