Arnold Kling  

Growth Clusters

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From David Halberstam's The Fifties, p. 174:

Everyone in this country, he thought, had a car and a family, and sooner or later everyone had to go somewhere. Dorothy Wilson listened to him with growing trepidation--when Kemmons Wilson said he was going to do something he did it. "How many of these motels are you going to build?" she asked nervously. "Oh, about four hundred," he answered. "That ought to cover the country." "And," he added, "if I never do anything else worth remembering in my life, children are going to stay free at my motels."

At that point, Kemmons Wilson had never done anything with a motel other than stay in one. He was angry enough about having to pay extra for his kids that he decided to disrupt the entire industry. He built the Holiday Inn franchise.

Holiday Inn is one of four businesses that Halberstam chronicles (although the book overall is more concerned with political and cultural developments). The others are Levittown, E.J. Korvettes, and McDonalds. The motel, the suburban tract home, the suburban discount store, and the fast food franchise were part of a growth cluster. They catered to families with young children and cars. Part of my view of modern U.S. economic history is that the pre-automobile economy died in the 1930's and the automobile-oriented economy emerged in the 1950's. Halberstam's description of those four businesses, which I read years ago and am now re-reading (boy, does the book suffer from horrible editing--many paragraphs have two versions of the same sentence, slightly reworded), is what put the idea into my head.

I am inclined to view what is happening today as the death of the pre-Internet economy. One scenario for the future is an Internet-adapted economy with growth clusters in alternative approaches to education and health care. Entrepreneurs face some major challenges in these clusters, however. Credential issues represent strong roadblocks. Moreover, government support for incumbents creates huge barriers to entry. But at some point, the government is going to run out of the money needed to prop up the education and health care cartels.

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COMMENTS (6 to date)
Felix writes:

Arnold, you might add the financial industry and government, itself, to that list of education and health care. Fun times ahead, fer sure, fer sure, good buddy.

Keith E writes:

This seems to fall into the view of the Kondratieff Cycles, or long waves, that some propose as being driven by turn-over in underlying capital base: a re-tooling of the capital required to produce new waves of capital equipment (An Integrated Theory of the Ecnomic Long Wave, Sterman, John D.) .

Still, even a re-calculaton type story doesn't necessarily explain the current recession or the great depression. It may be that such re-calculations create an environment of higher turnover as the economy sorts out what technologies (and companies) will succeed in replacing older ones. A recession like our current one (or the great depression) may be the result of bad policies over-laid with such re-calculations. As note, those that support the established players and hinder resources from flowing into the new areas. Or, like the late 1920s and early 30s, monetary policies that strangle growth.

One could argue that depressions and recessions became "great" when the policitial power structures became sufficiently large to protect legacy industries and prevent the flow of investment resources into their potential replacements.

Steve Sailer writes:

You can add Sears to that list, although they got in earlier. They started in the 19th Century as a mail order retailer for farmers, but in the 1920s they made a strategic decision that the future of America was families that owned houses and cars suburban areas. Good call.

MernaMoose writes:

But at some point, the government is going to run out of the money needed to prop up the education and health care cartels.

You're assuming anybody else in the US will still have any money by that point. I wouldn't bet on it.

Hyena writes:

Prior to the 1950s, though, people often relied on decentralized information sources like the medical references of the local library. It was only with the triumph of the industrial aesthetic in all areas of society that we had the careful hierarchies of expertise we now think of as normal.

I think the Internet is returning society to many of the earlier trends which were brutally disrupted by society coming to terms with industrialization.

I think that future growth clusters may take the form of reassertive old norms; looking at what we were working on, in terms of general concepts, prior to the 1930s might give us an idea. An example: everything about the Internet's promise for education seems to mirror the expansion of libraries and, earlier, traveling lectures. We've replaced these with Wikipedia and YouTube (TED talks have a distinct "lyceum" feel).

Rebecca Burlingame writes:

Good to be back online, the local telephone lines have been messed up all week. What a concise and excellent post and comments too.

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