If I Cluster, I Compete

By Holt, Jim | Management Review, November 1998 | Go to article overview
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If I Cluster, I Compete

Holt, Jim, Management Review

By Michael E. Porter Harvard Business School Press, 1998 480 pages

Regional rivalries give rise to nice, soft shoes.

There is, I must admit, nothing quite like a pair of Italian loafers. The leather is soft and buttery, and they're as light as a feather on your feet. Wearing them is the next best thing to walking barefoot.

But why must these marvelous shoes be imported from Italy, and at such a price? Why can't we make them in the United States? I thought I had learned the answer in Econ 101. International trade happens, I was taught, because different countries enjoy a "comparative advantage" in producing different things. Ecuador has a steamy climate where banana trees thrive. Colombia's dry matas allow the coffee bean tree to flourish. Thus Ecuador trades bananas to Colombia for coffee, and each nation benefits from the best of both worlds.

Applying the same logic to loafers, one might conclude that Italian calves yield softer leather than do American ones and that Italian shoemakers have greater manual dexterity than we Yanks - who are more clever at creating software. So nature, through the law of comparative advantage, has ordained that we should send Windows 98 to Italy and get back Gucci loafers. Which, when you think about it, is a load of nonsense.

Michael E. Porter has thought about it a great deal. No one has done more than Porter, a professor at Harvard Business School and advisor to numerous governments (including ours), to overturn the conventional thinking about international competitiveness - thinking that made sense in the 19th century world of Adam Smith, but that is dangerously obsolete today as it lingers in the equations of economists and the minds of policy makers.

"National prosperity is created, not inherited," Porter declares in On Competition, a collection of new and old essays, most of them from the Harvard Business Review. "It does not grow out of a country's natural endowments, its labor pool, its interest rate, or its currency's value, as classical economics insists." Globalization has wiped out those old advantages, he observes. The key factors of production today - technology, intellectual and financial capital, managerial skill - are not rooted in a nation's soil. They are eminently transportable across borders.

Then why do we import high-performance autos from Germany, VCRs from Japan, pharmaceuticals from Switzerland, footwear from Italy? If "comparative advantage" is a fiction, why couldn't those things be produced just as profitably in the United States or in a developing nation desirous of raising its living standard?

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