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This is a great article. When I read it in WSJ last week I realized that it helps explain why startup hubs such as Silicon Valley are so important for startups.

This is a great article. When I read it in WSJ last week I realized that it helps explain why startup hubs such as Silicon Valley are so important for startups. These locations simply offer more intangible wealth to founders. Just by being in a place like Silicon Valley you have more immediate access to investors, a society which understands and encourages startups, and like-minded peers. These are intangible items that may not immediately seem obvious but are contributors to success none the less. When this reasoning is applied it makes sense why founding a company in a place like SV is so important. When you are not in a startup hub, you are instantly at a disadvantage because you do not posses as much intangible wealth as a competitor who is.

trevelyan 19y ago
The World Bank runs a regression analysis trying to identify factors responsible for growth, and ends up with a remainder that is larger than any of their "measured" variables, including capital. This says nothing at all about "hubs" or "culture" or "language" or anything else. A better headline would be: Economists have no clue what causes growth
- tuukkah 19y ago
  Good point that we easily read too much into the study. On a positive note, it's already something to know that "80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type", that is, we know what the wealth is not. Further based on the (non-academic) article: "According to their regression analyses, for example, the rule of law explains 57 percent of countries' intangible capital. Education accounts for 36 percent." Wouldn't you say that's a clue at least?
- jsjenkins168 19y ago
  This is just an editorial discussing the findings of the report. Before making a claim that it says nothing about the cause of growth, we should consult the source [PDF]: http://siteresources.worldbank.org/INTEEI/Home/20666132/WealthofNationsconferenceFINAL.pdf http://siteresources.worldbank.org/INTEEI/Home/20666132/Weal... While I agree that tying this intangible wealth to specific factors such as "hubs", "culture", or "language" in a quantifiable manner may be largely guess work, I think it is difficult to argue that on a whole the sum of these factors don't contribute to total wealth. This is really the important consideration, in my opinion. At least when viewed from the perspective of an entrepreneur looking to start a business.
- pg 19y ago
  Or at least, whatever the cause is, it's not in the data they're traditionally given to use...
- vitaminj 19y ago
  It's true that one of the shady aspects of economics is the tendency to lump anything thats not observable in the model into an exogenous catch-all "intangible factors" variable. But fair play to economists, they have been banging on about the role of institutions as a key determinant to economic growth for a while now. For example: http://econpapers.repec.org/article/tafapeclt/v_3A11_3Ay_3A2004_3Ai_3A9_3Ap_3A587-590.htm http://econpapers.repec.org/article/tafapeclt/v_3A11_3Ay_3A2...) In part it's because the empirical data supports their view, though there's obviously a retrospective bias and a chicken and egg problem - did good institutions result from economic growth or vice versa?

trevelyan 19y ago

The World Bank runs a regression analysis trying to identify factors responsible for growth, and ends up with a remainder that is larger than any of their "measured" variables, including capital. This says nothing at all about "hubs" or "culture" or "language" or anything else. A better headline would be: Economists have no clue what causes growth

tuukkah 19y ago
Good point that we easily read too much into the study. On a positive note, it's already something to know that "80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type", that is, we know what the wealth is not. Further based on the (non-academic) article: "According to their regression analyses, for example, the rule of law explains 57 percent of countries' intangible capital. Education accounts for 36 percent." Wouldn't you say that's a clue at least?
jsjenkins168 19y ago
This is just an editorial discussing the findings of the report. Before making a claim that it says nothing about the cause of growth, we should consult the source [PDF]: http://siteresources.worldbank.org/INTEEI/Home/20666132/WealthofNationsconferenceFINAL.pdf http://siteresources.worldbank.org/INTEEI/Home/20666132/Weal... While I agree that tying this intangible wealth to specific factors such as "hubs", "culture", or "language" in a quantifiable manner may be largely guess work, I think it is difficult to argue that on a whole the sum of these factors don't contribute to total wealth. This is really the important consideration, in my opinion. At least when viewed from the perspective of an entrepreneur looking to start a business.
pg 19y ago
Or at least, whatever the cause is, it's not in the data they're traditionally given to use...
vitaminj 19y ago
It's true that one of the shady aspects of economics is the tendency to lump anything thats not observable in the model into an exogenous catch-all "intangible factors" variable. But fair play to economists, they have been banging on about the role of institutions as a key determinant to economic growth for a while now. For example: http://econpapers.repec.org/article/tafapeclt/v_3A11_3Ay_3A2004_3Ai_3A9_3Ap_3A587-590.htm http://econpapers.repec.org/article/tafapeclt/v_3A11_3Ay_3A2...) In part it's because the empirical data supports their view, though there's obviously a retrospective bias and a chicken and egg problem - did good institutions result from economic growth or vice versa?