Despite technology making it easier than ever before to source materials, inputs, employees from across the world, the most innovative, iconic, and productive groups flock to central hubs. Examples of clusters are Hollywood, Silicon Valley, Wall Street. But other, more niche clusters exist too, and very much influence the trajectory of industries and progress: Boston for biotech, Shenzhen for hardware & electronics, South Germany for automobiles, Southern California for wine, and more. And this is nothing new, historical clusters include 20th century Göttingen and Berlin for theoretical physics, Renaissance Florence for fine art, ancient Athens for philosophy, industrial London for engineering, and more.

This piece is based on an HBR article about the economics of clusters, and I'll draw on some of its content while highlighting the factors I think contribute most to giving clusters a disproportionate edge. I'm slightly biased towards clusters because I moved to SF thinking that the internet makes it as easy to start a successful company in London or Abu Dhabi as in the Valley, only to see firsthand how wrong I was, and how many decades ahead the rest of the world the Valley was.

Historically, competitive advantages came from sourcing better inputs for a lower cost than your competitors. Because the differences in input costs could be such a stark advantage, improvements in knowledge, management and technique weren't as valued, and being close to a port or railway line was an immense advantage, and so companies would cluster around them. As freight and shipping make procuring quality goods from across the world cheap, reliable and quick, the advantages in knowledge, management and technique have become decisive. Clusters having a huge advantage on this front, too, as a consequence of in-person meetings being significantly more effective at inciting progress and action than virtual ones--a fact I conjecture, but one that seems to be empirically true. At a high level, I think the advantages clusters hold in a modern knowledge economy include: lower barriers to entry, process knowledge, peer pressure, agglomeration economies, sophisticated markets, and public investment.

To conclude, I think clusters are one of humanity's most powerful engines for progress. As globalization further increases, I think their importance will only grow--social media led to more college parties, not less, and teleconferencing compounded the importance of in-person meetings instead of obviating them. Information technology makes the world more dynamic and knowledge/service based, which in turns gives outsized advantages to those that can easily identify and adapt to new trends and access 'insider' knowledge. It's a positive feedback loop. I'd welcome suggestion on how both legislation and technology can make large cities in developing and developed countries alike potential breeding grounds for clusters.