The Spiky World

 In the title of his bestselling book on the impact of globalization on economic development worldwide, New York Times foreign affairs columnist Thomas Friedman (2005) proclaims that The World is Flat. Basically, he argues that globalization in the information age has diminished the importance of location as a competitive edge in fostering economic growth. Richard Florida, author of The Rise of the Creative Class (2002) and The Flight of the Creative Class (2005a), counters: No, the world is spiky! In an Atlantic article, Florida (2005b) argues that while globalization has exposed many regions to heightened competition, the world is far from flat. It is still quite mountainous or "spiky" because it is full of clusters where location matters, most notably in cities. Far from existing in obscure and competitive flatness, specific places maintain their prosperity and competitive edge through clustered relationships in which the combinations of infrastructure, technology, specialty activities, entrepreneurial culture, human capital, and quality of life are quite significant for competitive economic advantage. As Florida puts it, for cities and localities to remain competitive in this global economy, they "need.....

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Institutions, of course, can be private as well as public. As an example, Friedman describes agreement on Internet protocols as one of the forces that flattened the world. They can also be informal as well as formal. Florida, however, elaborates and extends conventional applications of this concept to economic development by arguing that embracing diversity is a 10 key factor in enabling places to mobilize technology and talent. This can be seen as an institutional argument because informal institutional arrangements that discriminate are believed to disadvantage a community systematically in the competition for talented creative people. Human Capital Theory Theories of endogenous economic growth also are notable in Florida's and Friedman's work, with Florida extending the insights of human capital theory beyond what is typically offered. As posited by human capital theory, long-term growth is a function of technological and human capital development (Romer 1990). More precisely, enhancing a nation's knowledge and skill base leads to economic growth through development of new forms of technology and efficient and effective means of production. While physical capital is subject to diminishing returns, the accumulation of human capital leads to increasing returns. Knowledge not only increases individuals' productivity, but also the skill level and productivity of the whole work group (see Lucas 1988; Romer 1990). It is also important to note that in endogenous growth models, an educated workforce plays a special role in determining the long-term rate of technological innovation and long-run growth. The greater the accumulation of human knowledge, the greater the long-range technological progress and productivity gain (Gould and Ruffin 1993).