Steve Jobs And The Economics Of Place

One of the most fundamental elements of the economics of cities goes by the oddball name “agglomeration externalities” which is basically the idea that individuals and firms obtain productivity boosts by clustering together. The existence of agglomeration externalities is one of the reasons that people and firms choose to pay the costs (both in direct financial terms and indirect congestion/hassle terms) of locating in metropolitan areas rather than doing everything in rural Oklahoma where production inputs are cheap. These externalities are often described in slightly mysterious forms, so one thing that’s fantastic about Walter Isaacson’s Steve Jobs biography is the way it makes the existence of these things clear in practical concrete terms. It’s just obvious from reading the early chapters of the book that there could have been no Apple Computer if not for the fact that Jobs was born and raised in Silicon Valley. Not just in the sense that Jobs was personally fortunate to have been in the right place at the right time, but in the sense that the place itself had to exist for the right combination of building blocks to be put into place.

As a sophomore in high school, for example, Jobs worked at an electronics store called Haltek that Isaacson describes as “a scavenger’s paradise sprawling over an entire city block with new, used, salvaged, and surplus components crammed onto warrens of shelves, dumped unsorted into bins, and piled in an outdoor yard.” The presence of an excellent electronics stores is helpful to the young Jobs as he builds his skills. But there would be no gigantic electronics specialty store except in a place with an unusually high concentration of people interested in electrical engineering. The presence of the engineers creates the market for the store, which drives the interest of the younger generation of engineers.

You see this again during the development of the Apple I. Steve Wozniak is employed by Hewlett-Packard at the time, and he’s using his HP workspace in his spare time to work the design out. Wozniak himself was ahead of the computing curve because he “spent a lot of time at home reading his father’s electronics journals, and he became enthralled by stories about new computers, such as the powerful ENIAC.” When Jobs needed to find a cheaper alternative to the Intel 8080, he turned to “the Motorola 6800, which a friend at HP was able to get for $40 apiece.” And when Apple was far too small to have a marketing or distribution network, Jobs went in person to Silicon Valley electronics stores and sold them on the design. The initial thing only got off the ground, in other words, because it was being worked on in a location that was unusually dense with both production inputs and potential customers. Meanwhile, Silicon Valley is not only a hub of electronics and engineering but also geographically proximate to San Francisco and the arts and counterculture scene with the influence that has on Jobs’ life and the aesthetic orientation of his company over time. The story keeps going on like this. Jobs doesn’t build the company alone, or even build it with his formal partners. He also builds it with an array of formal and informal personal and professional associates that you only meet in certain kinds of places and that can only exist given the pre-existing high density of electronics firms in the area.

Part of the moral of the story is about the role of luck and contingency in any successful person’s life. But an important part of it is about the importance of clusters as such and the way that past success can lay the groundwork for future success. America is home to many of the world’s most successful high tech companies today in large part because we were home to many of the world’s most successful high tech companies 35 years ago.