A common economic development tool used by government agencies is to pick economic "winners" and use them as development hubs. A report by Michael J. Orlando and Michael Verba appears in the 2nd quarter 2005 edition of The Economic Review (published by the Federal Reserve Bank of Kansas City) found that these hubs of innovation may not offer as much long term advantage as once thought.
From the National Dialogue on Entrepreneurship:
These knowledge spillovers are the real competitive advantage of cities. But, does this doom rural communities or less populated areas? Not at all, contend the authors. They argue that locational advantages become less important as technologies mature and their development paths become more predictable. At this point in the technology life cycle, less populated regions enjoy a competitive advantage as they can combine both innovation and lower operating costs. By tracking the location of patenting, the authors indicate that this pattern does indeed characterize the development of many leading technologies in the US economy.
In other words, despite government's best efforts to guide the process of entrepreneurial activity, it is markets that shape the winners and losers over the long-run. Perhaps governmental efforts should be directed away from active planning and toward more proven entrepreneurial stimulators: reducing regulation and creating a fairer tax system.
