Special issue on Diaspora Investment and Entrepreneurship: The Role of People, their Movements, and Capital in the International Economy

A special issue of the Journal of International Management that I helped guest edit was just published: Diaspora Investment and Entrepreneurship: The Role of People, their Movements, and Capital in the International Economy.

From the introduction:

Significant scholarly attention in international business has been paid to cross-border movements of financial capital through foreign direct investment, portfolio investment, and international entrepreneurship. The transnational flows of people and the different types of capital that they possess have received lesser attention. Communication and transportation innovations associated with globalization now enable migrants to stay in contact with and visit their countries of origin more easily and cheaply than ever before. This has given rise to the phenomenon of “diasporas” — groups of emigrants who leave their countries of origin for a prolonged period of time but still demonstrate a strong link with their migration history and a sense of co-ethnicity with others of a similar background.
Diasporans often invest in their home countries through direct and portfolio investments or through the establishment of new ventures in their homelands. Diaspora capital – human, social, and financial – may be a useful development resource for migration-sending countries, many of which are among the most capital needy in the world. With the help of the Chinese diaspora, China has won the race to become the world's factory. In a similar vein, with the help of the Indian diaspora, India could become the world's technology lab. Capital from diaspora investment and entrepreneurship has also played an important role in industrialized countries, such as Israel, Ireland, and Italy, furthering economic growth and innovation.

And here are the main articles:

The Evolving Diaspora of Talent: A Perspective on Trends and Implications for Sourcing Science and Engineering Work, Arie Y. Lewin, Xing Zhong

Embedded Diasporas: Shaping the Geopolitical Landscape, Deborah E. de Lange

Diaspora Concentration and the Venture Investment Impact of Remittances, Paul M. Vaaler

To share or not to share: The role of affect in knowledge sharing by individuals in a diaspora, Helena Barnard, Catherine Pendock

Counterfeit Smuggling: Rethinking Paradigms of Diaspora Investment and Trade Facilitation, Kate Gillespie, J. Brad McBride

The Boundary Spanning Effects of the Muslim Diaspora on the Internationalization Processes of Firms from Organization of Islamic Conference Countries, Andreas Schotter, Dina Abdelzaher

Science and the city

Johnson, Steven. Ghost Map: The Story of London's Most Terrifying Epidemic -- and How It Changed Science, Cities and the Modern World, Riverhead Books, 2006.

The map in the title of this book shows houses and wells in mid-19th-century London. In 1854 Soho experienced the most violent outbreak of cholera in the city's history. The map, compiled by the physician John Snow, shows the number of dead for each house and which well is closest in terms of walking distance. Its story is usually told as one of cartographic innovation - the map eventually helped to convince the political scientific establishment of the day that keeping drinking water clean (ie. improving and rerouting sewage systems) could prevent cholera epidemics.

Steven Johnson traces Snow's efforts and finds that the map was merely the final product of a much more fascinating story.

The accepted theories of cholera transmission at the time were a) a miasma theory that related disease to "bad air" and stench produced by unsanitary living conditions and b) that the lower classes were more susceptible to disease through unspecified "moral failings." 

Snow, a prolific scientist and distinguished physician - and more importantly a rigorous empiricist, could find no support for these theories. His observations suggested that patients contracted cholera by ingesting something harmful, not by inhaling it or through a weak moral constitution. He had a hunch that cholera was spread through water contaminated by sewage and set out to prove it by linking cholera cases and different water sources.

Snow's initial focus of inquiry was an area of London that had a mixed water supply, ie. different houses received their water from different companies. At one point, he spent days going from house to interviewing residents about their water consumption. When the 1854 epidemic broke out in his own neighborhood, he not only tended to the ill, but also kept records of cholera deaths by house and linked them to a specific pump on nearby Broad Street. Again, he spent hours interviewing people about their drinking habits and also managed to link several deaths further afield to the same pump.

Snow presented his data to the Board of Governor's of St. James Parish as they tried to deal with epidemic. The board members were skeptical - after all, the Broad Street pump was known for its particularly pure water. But they had few other options, and the risks of shutting down the pump were low compared to the potential of saving tens or hundreds of lives. So, a week after the first outbreak of cholera, the handle on the Broad Street pump was removed. While this was probably the first scientifically sound reaction in the battle against cholera, the neighborhood public and the national Board of Health were not convinced.

Henry Whitehead, a clergyman, spent most of his days walking around the Broad Street neighborhood, talking with his parishioners. When the cholera epidemic hit, he saw the consequences first-hand. He soon discredited both the "miasma" and the "moral weakness" arguments. He realized that there were fewer higher-class deaths than lower-class deaths per house, simply because the lower-class apartments were more densely populated. In fact, per capita death rates were unrelated to class. One of the most severely affected houses was locally known to be one of the cleanest, unlikely to suffer more from miasma than many filthier houses that had fewer cholera cases. The local work house which should have been hit worst, reported remarkably few deaths.

When Whitehead heard of Snow's water-borne explanation, he set out to debunk it like the others. He had seen several patients recover after drinking large quantities of water from the Broad Street pump (thereby almost stumbling on the cure for cholera), so he thought that discrediting Snow's theory would be easy. However, the more he spoke to survivors and former residents who had fled the epidemic, the more supporting evidence he found. Where Snow had tallied deaths and linked them to the pump, Whitehead added survivors and linked them to alternate water sources (or beer consumption instead of water).

Eventually, it was Whitehead who discovered the source of the epidemic: by chance he stumbled on the record of the death of a baby girl, reportedly from diarrhea, who fell sick a few days before the outbreak. The girl's address was immediately next to the Broad Street pump, and the family used a (officially nonexistent) cesspool located just a few feet from the pump for their household waste. By now, Snow's and Whitehead's case was convincing enough to warrant an inspection of the well. The final confirmation came when the cess pool was found to be leaking into the well.

These results were reported by the vestry of St. James parish, and both Snow and Whitehead wrote extensively about the cholera outbreak in the following years. Still, the scientific community clung to miasma and class/morals-based theories. The official report of the national Board of Health blamed miasma for the 1854 epidemic and all but ridiculed Snow's water-borne theory.

And finally, we come to the map. Snow started working on it several months after the outbreak. Several maps had been created to analyze the cholera epidemic, but these weren't linked to rigorous scientific theorizing and data. By reducing the map to streets, houses, pumps and cholera deaths, Snow made a striking visual case for his theory. A revised version was included in the St. James vestry's report, and this contains the most innovative technique used on the map: a dividing line shows groups houses together in terms of which well is closest by walking distance (a so-called Voronoi diagram). The geography of Soho streets and alleys meant that walking time and distance as the crow flies were not always correlated. This version posed an even more striking argument linking the Broad Street pump to the 1854 cholera epidemic.

While the map was important, Johnson shows that it - and the theories it supported - would never have seen the light of day without the incredible depth of local, even amateur, knowledge that Snow and Whitehead brought to it. And while the map legitimized the first correct science-based response to a cholera epidemic, its authority was based in the scientific inquiry behind it.

Johnson also argues that the epidemic was as much a product of the city as the ultimate measures to prevent it. Cholera could never have spread as virulently without the incredible population density found in London in the 1850s; it would never have found a way to spread if London hadn't been overwhelmed by the sheer quantity of human waste produced by this population. On the other hand, two working class men (John Snow and Henry Whitehead) would hardly have gained the education and reputation to influence public health policy anywhere outside the socially mobile city; high population density also meant that Snow and Whitehead were able to gather enough data to convincingly prove their theory.

The massive reconstruction of the sewage system that followed many years later (and only after another decimating epidemic) essentially rid London of cholera. This example, not only allowed other cities to improve their sanitation cities, it also proved the enduring viability of the city. Widespread ideas that cities of a million of more people were destined to self-destruct and drown in their own waste were refuted once and for all.


Links:
Online resources for the book (incl. links to the map and the UCLA department of epidemiology's John Snow site).
Steven Johnson's TED talk on the cholera epidemic.
The map (without the Voronoi diagram showing walking time).
Review of Johnson's first book, "Interface Culture."

Get The Ghost Map: The Story of London's Most Terrifying Epidemic--and How It Changed Science, Cities, and the Modern World.

Get Interface Culture.

The size of cities

2 recent NYT columns about the size of cities caught my eye.

Edward Glaeser explains why India's (and emerging economies') cities grow so large. And Steven Strogatz explains the power law that describes the exponential distribution of city sizes within a country - and relates it to similar distributions observed within living organisms.

Here's a particularly interesting insight from Strogatz's column:

For instance, if one city is 10 times as populous as another one, does it need 10 times as many gas stations? No. Bigger cities have more gas stations than smaller ones (of course), but not nearly in direct proportion to their size. The number of gas stations grows only in proportion to the 0.77 power of population. The crucial thing is that 0.77 is less than 1. This implies that the bigger a city is, the fewer gas stations it has per person. Put simply, bigger cities enjoy economies of scale. In this sense, bigger is greener.


The same pattern holds for other measures of infrastructure. Whether you measure miles of roadway or length of electrical cables, you find that all of these also decrease, per person, as city size increases. And all show an exponent between 0.7 and 0.9.

Dissertation abstract

Now that the dissertation draft is complete, I feel it's time to put my abstract online for those people who want a bit more than my "elevator spiel" about what I actually wrote. Find it here thanks to Google Docs.

Argonauts, ethnic scientific communities

AnnaLee Saxenian, The New Argonauts, Harvard University Press, 2006
William Kerr, Ethnic Scientific Communities and International Technology Diffusion, HBS Working Paper 06-022, 2006
Ajay Agrawal, Devesh Kapur, John McHale, Defying Distance: Examining the Influence of the Diaspora on Scientific Knowledge Flows, Working Paper 2004

Entrepreneurial networks carry regional advantage across distance

AnnaLee Saxenian has long been a follower of localized firm and professional networks in the hi-tech industry, highlighting their superiority over corporate hierarchies in her book "Regional Advantage." More recently, in "The New Argonauts," she has turned to ethnic professional networks in Silicon Valley, especially in the Indian, Chinese and Israeli communities. These networks, originally founded for social purposes, evolved to become professional networks for advice, capital and know-how for immigrant entrepreneurs. As immigrant entrepreneurs in Silicon Valley identified business opportunities in their home countries, the networks extended to support these new ventures. They also tied into their home-countries' networks through alumni associations and family ties.

Thus, organizations that were once highly localized began to reach across continents - and their benefits with them. Access to tacit knowledge (technical and managerial), a common understanding of entrepreneurship, shared language and culture have all been considered factors that are bound by geography and contribute to the success of regional economies. Now, they are transcending vast distances thanks to the kinds of networks described by Saxenian. New "Argonauts" (people who work in two or more regions, shuttling back and forth several times per month) literally carry market and technological knowledge, contacts, business models and capital around the world.

As a result:
Silicon Valley, once the uncontested technology leader, is now integrated into a dynamic network of specialized and complementary regional economies.
These new technology regions are not replicas of Silicon Valley, nor are they becoming new Silicon Valleys [...] Even as the returnees seek to use their experience in Silicon Valley to reshape these institutions, distinctive regional and national histories ensure that the identities and technology trajectories of these regions are unlikely to converge.

Some quantitative evidence

Ajay Agrawal, Devesh Kapur and John McHale analyzed patent citations within the Indian diaspora. They found that co-ethnicity increases the likelihood of knowledge flows. Diaspora membership is also found to substitute for co-location as a conduit for knowledge flows.

In a similar study, William Kerr has found quantitative evidence for the power of ethnic networks in a patent citation study. By linking patent data with an ethnic name-database, he was able to analyze ethnic scientific communities in the United States and the communities' home countries. He found that ethnic communities contribute significantly to technology adoption within the first five years of a new technology being developed.

Kerr also found tangible benefits for the home countries using a factor productivity approach: Greater integration with the US technology frontier contributed to an increase in manufacturing output in these countries. In more advanced economies the effect was due to productivity increases; in less advanced countries, productivity increases combined with a reallocation of labor from agriculture to manufacturing.

Krugman's spatial economics

Development, Geography, and Economic Theory, Paul Krugman, 1995

More from Krugman. He gives a particularly good summary of various economic theories of agglomeration.

Germanic geometry
1. Weberian location theory:
Alfred Weber and his followers ... analyzed the location decision of a firm serving one or more markets and relying on one or more sources of supply, with the total number of such relevant points not less than three. The problem was that this was essentially geometry and didn't take into account who was making the decisions and how; there was no mention of competitors, pricing etc.; and there was no explanation why there should be only one production site.

2. Central-place theory (Loesch, Christaller)
This analyzed the location and roles of manufacturing/marketing/ect. centers serving a hypothetical evenly spread agricultural population. In this tradition, Loesch had the big geometric insight -- that market areas should be hexagonal -- while Christaller produced the empirically fruitful idea that tere should be a hierarchy of central places, with nested market areas. ... the trade-off between economies of scale and transportation leads producers to cluster together into a hierarchy of cities serving nested, hexagonal market areas. But on closer inspection it becomes unclear exactly what is supposed to be going on. Who is making location decisions? There is also no clear description of market structures.

Central-place theory implies that we are in a world in which there are unexhausted economies of scale, and thus in a world of imperfect competition. You can't tell a story about central-place formation unless you are prepared to offer some description, however stylized, of that imperfectly competitive market structure. And that, until relatively recently, was something economists felt unable to do.

Social physics
This is economic geography done by analogy to physics: working with the problem of balancing several discrete forces of attraction and developing new theories to explain empirical regularities (e.g. Zipf's law of city size distribution).
In the 1950s American geographers came up with the idea that firms tend, other things equal, to choose locations of maximum "market potential," where the market potential of a site was defined as some index of its access to markets, involving both the purchasing power of all the markets to which it might sell and the distance to those markets. However, it is completely unclear what is being maximized when a firm chooses a point of maximum market potential. Again, market structure is the problem. Firms cannot exhibit constant returns to scale -- otherwise one would simply establish a facility to serve every market, ... nor can they be producing goods that are perfect substitutes.

Cumulative causation
One immediately obvious implication of the market potential analysis is the possibility of circularity. Firms want to locate where market potential is high, that is, where lots of firms locate. So one is led naturally to a consideration of the possibility of self-reinforcing regional growth or decline. This line of thinking follows the "Big Push" model of high development theory. While Big Push-type stories may be implausible for the economy as a whole (since they assume perfectly elastic supply of labor), they may make perfectly good sense for a particular region since the supply of factors to any specific region will typically be very elastic because they can come from somewhere else.

Some of the authors of the classic high development tracts seem to have realized this. ... The explicit application of high development concepts to region growth, however, is something one usually associates with Alan Pred (1966). Pred's story is essentially a variant on the Big Push. Suppose that a regional economy grows to the critical point at which it becomes profitable to replace imports of some good subject to scale economies with local production. This import substitution will expand regional employment, drawing in workders from other regions; and in so doing will further expand the local market. This market expansion may, in turn, provide the market size necessary to induce a second round of import substitution, and son on -- a cascade of growth reflecting the circular relationship between market size and the range of industries that a region possesses.

(I find that this resonates very much with Jane Jacobs' ideas about how the earliest cities formed.)

Local external economies
The idea that clustering of producers in a particular lcation yields advantages, and that these advantages in turn explain such clustering, is an old one. ... Indeed, to those who imagine that increasing returns are something only recently discovered, it is startling to see how much attention is given in Marshall's 'Principles' to local externalities. They are emphasized both for their intrinsic importance and for the way they exemplify his concept of external economies in general.

What Marshall meant by an external economy was not exactly what later authors meant. In the 1940s and 1950s economists came to make a clear distinction between technological external economies -- pure spillovers -- and pecuniary externalities mediated through the market. In a world of constant returns at the level of the firm and perfect competition, pecuniary externalities don't have any particular importance, so onl technological spillovers matter. Marshall, however, did not make this distinction. ... In the light of current theory, of cours, he was right to do so. We now understand that the sharp distinction between technological and pecuniary external economies holds only in a contant-returns world; in general market-size external economies are just as real as technological spillovers. ...

Suppose that we think of positive local external economies, which tend to promote concentration of production, as being opposed by other effects -- congestion or land costs -- that tend to promote dispersal. Then we are on our way toward a story about both the optimal size of cities and, if we are prepared to make some assumptions about the process of city formation, a theory of the actual size and number of cities. (cf. Vernon Henderson, 1974).

Land rent and land use
The analysis of land rent and land use derives directly from von Thuenen's Isolated State. He envisaged an agricultural plain supplying a variety of products to an isolated central city; and he realized that one could think of the simultaneous determination of a land rent gradient declining from the center to an outer limit of cultivation, and of a series of rings in which different crops would be clutivated and/or different farming methods adopted. Thus the high-rent land near the center would be reserved for crops with high costs of transportation and/or crops yielding high value per acre; the outermost ring would consist of either land-intensive or cheaply transported crops. This model conforms surprisingly well to neo-classical economics in that it includes the idea of an equilibrium and the idea that 'value' is an emergent consequence of a market process, goods and factor prices, and efficient outcomes of markets. Unfortunately, it simply assumes the thing you want to understand: the existence of a central urban market. Indeed, the whole thrust of the model is to understand the forces that spread economic activity away from that center, the "centrifugal" forces if you will. About the "centripetal" forces that create centers, that pull economic activity together, it can and does say nothing.

The "new urban economics," which deals mainly with central business districts followed in this tradition in the late 1960s and early 1970s.

Krugman's model
In Krugman's own words: I imagine an economy with a number of separate locations. There are two sectors: agriculture, which is geographically immobile, and manufacturing, which is mobile over time. The geographic reallocation of manufacturing is, however, not instantaneous. ...

Manufacturing consists of many firms producing differentiated products; increasing returns ensure that not all potential goods are produced, and thus that each plant produces a unique good ... . The monopolistic competition assumption neatly, if implausibly, disposes of problems like strategic behavior. All that firms need to do is choose an optimal location, taking into account the spatial distribution of demand and the transportation costs they must pay. ...

The most important thing I learned is that all of my first four traditions in spatial analysis ... make perfectly good sense in terms of a rigorous economic model. ... Moreover, it turns out that all four traditions are really different aspects of the same story.

The locus of globalization

Global networks - Linked cities (Introduction), Saskia Sassen, 2002

Saskia Sassen has been following global capital markets for years. In the introduction of this edited volume, she uses capital markets to explain the strange relationship between economic globalization and geography. While Sassen focuses on global cities (New York, London, Hong Kong, Tokyo, and more recently Sao Paolo, Mexico City, Johannesburg, Bombay, Shanghai, etc.), many of her insights are applicable to specialized clusters. Since much of her analysis is based on the finance industry, the leap to apply it to other information-based industries is not very large. Of course, her aim is a different one than mine. In the larger argument on globalization, financial markets are probably a better indicator of the global economy than the new technologies I'm looking at.

By analogy, her comments on the relationships between global cities is also much-welcome support for my proposition that we are seeing a network of cooperating and competing hi-tech clusters emerge. As Sassen sees it, such a network of global cities already exists.

There is a growing number of transnational actors: not only MNCs, but also NGOs, government regulators, professional associations, mayors etc. As the nation state loses power (e.g. by giving up state monopolies), other geographic entities gain: cities, regions, cross-border regions, and supranational entities (e.g. the EU). Add to this the existence of new 'virtual spaces' and the picture can easily become confusing. On the one hand, cities and regional economies are becoming more important, agglomeration economies are increasingly powerful. On the other hand, ICTs allow a dispersion of information, capital, and thereby business. According to Sassen, these two trends are not wholly contradictory, and 'global cities' are the links between national economies and global circuits.

Cities provide the pronounced territorial concentrations of resources necessary for the management and servicing of more dispersed and mobile resources. By doing so, they reinforce the global influence and the global links of their respective cities - strengthen their position in the global economy. While they therefore remain dependent on their surrounding regions, these cities become a part of the global center: the network of global cities.

The geography of globalization contains dynamics of both dispersal and centralization. The massive trends toward the spatial dispersal of economic activities at the metropolitan, national, and global levels that we associate with globalization have contributed to a demand for new forms of territorial centralization of top-level management and control functions. Insofar as these functions benefit from agglomeration economies even in the face of telematic integration of a firm's globally dispersed manufacturing and service operations, they tend to locate in cities. An important reason why they might benefit from agglomeration economies lies in the presence of business networks.

By central functions I do not only mean headquarters functions; I am referring to all the top-level functions necessary to run a corporate organization operating in multiple countries. These central functions are partly embedded in headquarters, but also in good part in what has been called the corporate services complex, that is, the network of financial, legal, accounting, and advertising firms that handle the complexities of operating in more than one national legal system, national accounting system, advertising culture, and so forth and do so under conditions of rapid innovations in all these fields. Such services have become so specialized and complex that headquarters increasingly buy them from specialized firms rather than produce them in-house. These agglomerations of firms producing central functions for the management and coordination of global economic systems are disproportionately concentrated in an expanding network of global cities. This network represents a strategic factor in the organization of the global economy.

Further, leading firms in information industries require a vast physical infrastructure containing strategic nodes with hyperconcentration of facilities; we need to distinguish between the capacity for global transmission/communication and the material conditions that make this possible.

Sassen goes on to explore the new economic geography that combines agglomerations and global dispersal.

This type of analysis of globalization, which seeks to map the strategic sites with hyperconcentration of resources as well as the cross-border networks that link these sites and others, helps us understand to what extent there is a specific geography of globalization and the fact that it is not a planetary event encompassing all of the world. It is, furthermore, a changing geography, one that has undergone multiple, often specialized transformations over the last few centuries and over the last two decades, and most recently has come to include electronic space.

Today, partly as a result of the new technologies, the spatial correlates of the center can assume several geographic forms, ranging from the CBD (central business district) to a new global grid of cities. Simplifying one could identify three forms of centrality today.

First, while there is no longer a direct relation between centrality and geographic entities such as the downtown, the CBD remains a key form of centrality. But the CBD in major international business centers is one profoundly reconfigured by technological and economic change. ...

Second, the center can extend into a metropolitan area in the form of a grid of nodes of intense business activity. ... Insofar as these various nodes are articulated through cyberroutes or digital highways, they form a grid that is a geographic correlate of the most advanced type of "center." The places that fall outside this new grid of digital highways, however, are peripheralized. This grid of nodes represents, in my analysis a reconstitution of the concept of region. Far from neutralizing geography, the grid is likely to be embedded in conventional forms of transport infrastructure, notably rapid rail and highways connecting to airports. ... (Compare this to the Silicon Valley notion that the diameter of the cluster is defined by a 2-hour drive.)

Third, we are seeing the formation of a transterritorial "center" constituted via telematics and intense economic transactions. It consists of the multiple and diversifying inter-city links that take place partly in electronic markets and transactions and partly through the intensifying circulation of goods, information, firms, and workers. In this regard this is both a territorialized and deterritorialized space of centrality. It requires both a specific logic for territorial development and the infrastructure for global networking technologies.

The relationship of cities within this last transterritorial center sounds much like that of organizations within a conventional agglomeration economy.

The global integration of markets make many ... activities redundant and makes collaboration a far more complex matter, one that has the effect of sharpening the division of labor within the network. Beyond the necessary range of specialized services present in all these centers, we now also see a trend toward the formation of specialized capabilities that partially differentiate centers and simultaneously integrate them into a larger global network. This configuration also promotes the formation of strategic alliances. ...

In my reading the globally integrated financial system is not only about competition among countries as is typically assumed. The trend is toward an increase in specialized collaborative efforts among these centers. Further, insofar as markets are integrated, growth overall is maximized through growth in all centers.

But why have financial centers at all? It comes back to well-known arguments about social networks and interpretation vs/ information.

The continuing weight of major centers is, in a way, countersensical, as is, for that matter, the existence of an expanding network of financial centers. The rapid development of electronic exchanges the growing digitization of much financial activity, and the fact that finance produces a dematerialized and hypermobile product, all suggest that location should not matter.

3 reasons that explain the trend toward consolidation in a few centers rather than massive dispersal:

a) The importance of social connectivity and central functions.
First, while ICTs do indeed enable geographic dispersal of economic activities without losing system integration, they have also had the effect of strengthening the importance of central coordination and control functions for firms and even for markets. ...
One fact that has become increasingly evident is that to maximize the benefits of ICTs firms need not only the infrastructure but a complex mix of other resources. Most of the value added that these technologies can produce for advanced service firms lies in so-called externalities - material and human resources such as state-of-the-art office buildings, top talent, and the social networking infrastructure that maximizes connectivity. ...
A second fact that is emerging with greater clarity concerns the nature of "information." There are two types of information. One is the datum, which may be complex yet is standard knowledge: the level at which a stock market closes, a privatization of a public utility, the bankruptcy of a bank. But there is a far more difficult type of "information," akin to and interpretation/evaluation/judgment. ... Access to the first kind of information is now global and immediate ... But the second type of information requires a complicated mixture of elements, which we could think of as the social infrastructure for global connectivity. It is these specialized kinds of social connectivity that give major financial centers a leading edge. ...

b) Cross-border mergers and alliances.
Global firms in the financial industry need enormous resources, which is leading to rapid mergers and acquisitions of firms and strategic alliances among markets in different countries. ...
I would argue that another kind of "merger" is the consolidation of electronic networks that connect a very select number of markets. In the late 1990s several financial exchanges sought to form highly integrated alliances. ...
What we are seeing now is a ... pattern whereby the cooperation or division of functions is somewhat institutionalized: strategic alliances not only between firms across borders but also between markets. There is competition, strategic collaboration, and hierarchy.

c)Denationalized elites and agendas. ...
Major international business centers produce what we can think of as a new subculture, a move from the "national" version of international activities to the "global" version. ... I would posit that major cities, and the variety of so-called global business meetings (such as those of the World Economic Forum in Davos and other similar occasions), contribute to denationalize corporate elites.

Essentially: The global economy and the people that are more part of it than of their national/regional economies still need a place or home. Global cities provide it.


Some numbers on the global economy:
By 1999 companies had well over half a million affiliates outside their home countries accounting for U.S. $11 trillion in sales, a very significant figure if we consider that global trade stood at U.S. $8 trillion.
The orders of magnitude of cross-border financial transactions have risen sharply, as illustrated by the 1999 U.S. $68 trillion in the value of internationally traded derivatives, a major component of the global economy.

Factors of cluster success

'Old Economy' Inputs for 'New Economy' Outcomes: Cluster Formation in the New Silicon Valleys, Timothy Bresnahan, Alfonso Gambardella, Annalee Saxenian, 2001

While looking for links between old and new hi-tech clusters, I came across this paper. It ties in with a series of studies conducted a while back in Ireland, India, Israel, Taiwan etc.

The authors argue that the factors that start a cluster are very different from those that keep it going/growing. (E.g. "success breeds success" isn't useful in founding a cluster). Starting a cluster involves much higher risks for firm founders, especially since they must bet on future technology trajectories.

They focus on the following factors of cluster success in their analysis:
- unemployed skilled technical labor (or skilled labor with low opportunity cost)
- managerial labor
- new firm foundation and firm growth (large firms attract more specialized supply, invest in larger projects, connect to world markets)
- connection to markets
- complementarity to leading/existing clusters rather than head-to-head competition. Strong links as people and ideas flow back and forth
- physical/supply-side restrictions on existing clusters support growth in new clusters
- policy of "benign neglect" and/or investment in education, encouraging multinationals, tolerating/encouraging brain drain, and - if possible - fostering sizable demand (e.g. national policies of adopting the GSM standard uniformly increased market size for telecoms suppliers)

Interestingly, (telecoms) infrastructure is not mentioned, even though at least some of the clusters in question (think outsourcing of services to Ireland and India) were greatly aided by the availability of excess bandwidth. Communications links also supported the 'strong links as people and ideas flow back and forth.'

Here's the paper abstract:

This paper discusses the results of a two-year research project on the sources of success in regional clusters of entrepreneurship and innovation like Silicon Valley. Our project has studied a number of locations, most of which have shown spectacular rates of growth of information and communcations technology-related activities during the 1990s. Our case studies comprise some emerging regions, notably in Ireland, India, Israel and Taiwan, along with more advanced areas like Northern Virginia in the US, Cambridge, UK, the Scandinavian countries and the Silicon Valley 40 years ago by way of the memory of one of its 'father founders', Gordon Moore. Through visits, interviews and other materials, we uncovered some regularities about the determinants of success of these entrepreneurial-led models of economic growth. We find that the economic factors that give rise to the start of a cluster can be very different from those that keep it going. Agglomeration economies, external effects and 'social increasing returns' of any sort arise almost naturally after a cluster has taken off. But the most difficult and risky part is to get the new clusters started. At that stage, 'old economy' factors like firm-building capabilities, managerial skills, a substantial supply of skilled labor and connection to markets were crucial for the take off of these 'new economy' clusters (including Silicon Valley 40 years ago).