Increasing Returns and Path Dependence in the Economy

6. Urban Systems And Historical Path Dependence

CHAPTER 6 Urban Systems and Historical Path Dependence When does history make a difference in the formation of economic structures ? Under some circumstances the small events of history are averaged away and an unavoidable outcome or structure is reached. Under other circumstances , differences in these chance events can steer the economy into potentially very different structures. This paper-a variation on the locational themes ofchapter 4-explores the importance of history by contrasting three mechanisms or models of industry location. In the first (called pure necessity) chance events influence location but are averaged away, so that history does not count. In the second (called pure chance) any locational pattern can arise, and history is allimportant . In the third (called chance and necessity) geographical attractions interact with chance events, and history is partially responsible for the outcome. The paper was written in 1987 and appeared as chapter 4 in Cities and Their Vital Systems, edited by Jesse H. Ausubel and Robert Herman, National Academy Press, Washington D.C. 1988,85-97. In the version here, I have made small changes in the introduction. If small events in history had been different, would the pattern of cities we have inherited be different in any significant way? Could different "chance events" in history have created a different formation of urban centers than the one that exists today? To a great degree, cities form around and depend upon clusters of industry , so that without doing too much injustice to the question we can ask whether the patterns of location of industry follow paths that depend upon history. The German Industry Location School debated this question in the earlier part of this century, but it was never settled conclusively. Some theorists l saw the spatial ordering of industry as preordained-by geographical endowments, shipment possibilities, firms' needs, and the spatial distribution of rents and prices that these induced. In their view, history did not matter: the observed spatial pattern of industry was a unique "solution" to a well-defined spatial economic problem. Therefore, early events in the configuration of an 1. Von Thtinen (1826), the early Weber (1909), Predohl (1925), Christaller (1933), and Losch (1944). 99 100 Increasing Returns and Path Dependence in the Economy industry could not affect the result. Others2 saw industry location as pathdependent -as an organic process with new industry laid down upon and very much influenced by inherited, locational patterns already in place. Again geographical differences and transport possibilities were important, but here the main driving forces were agglomeration economies-the benefits of being close to other firms or to concentrations of industry. In this view, early firms arriving by "historical accident" might put down in locations they were attracted to for geographical reasons. Later firms might be attracted to these same places by the presence of these early locators, rather than geography. Still later firms might be attracted in tum by their presence. The industry ends up clustered in the early-chosen places. But this spatial ordering is not unique: a different set of early choosers could have steered the locational pattern into quite a different outcome, so that settlement history would be crucial. These two viewpoints-determinism versus history dependence, or "necessity " versus "chance"-are echoed in current discussions of how modern industrial clusters have come about. The determinism school, for example, would tend to see the electronics industry in the United States as spread over the country, with a substantial part of it in Santa Clara County in California (Silicon Valley) because that location is close to Pacific sources of supply and because it has better access there than elsewhere to airports, skilled labor, and advances in academic engineering research. Any "small events" that might affect location decisions are overridden by the "necessity" inherent in the equilibration of spatial economic forces; and Silicon Valley is part of an inevitable result. Historical dependence, on the other hand, would see Silicon Valley and similar concentrations as largely the outcome of "chance." Certain key persons-the Packards, the Varians, the Shockleys of the industryhappened to set up near Stanford University in the 1940s and 1950s, and the local labor expertise and interfirm markets they helped to create in Santa Clara County made subsequent location there extremely advantageous for the thousand or so firms that followed them. If these early entrepreneurs had had other predilections, Silicon Valley might well have been somewhere else. In this argument, "historical chance" is magnified and preserved in the locational structure that results. Although the historical...