From the weekend's past New York Times (courtesy of Peter Gordon):
IN our celebrity-studded world, where we make a cult of genius and individual achievement, the mind rebels at the notion that geography trumps personality. Yet the inescapable lesson of the iPod, Google, eBay, Netflix and Silicon Valley in general is that where you live often trumps who you are.
Just ask Sim Wong Hoo. About seven years ago, I met Mr. Sim in Singapore, where he was born and was then living. He talked about the rising creativity of Singaporeans and with a flourish, as if to dramatically make his point, he pulled out a prototype of a hand-held music player that he insisted would replace Sony’s famous Walkman.
Mr. Sim’s device was breathtaking, possessing all the elements of what we now know as the MP3 player. Yet today, a Silicon Valley icon, Apple, dominates the market for MP3 players with the iPod. In recognition of its emergence as a music powerhouse, last month Apple dropped the word “computer” from its name.
This anecdote is followed by another, highlighting the story of "Nordic innovators" scooped by Google, presumably because the latter had the good luck to be in the right location, location, location (i.e. Silicon Valley).
What gives? The article's author, G.Pascal Zachary, offers this explanation:
Many times in the past, pundits have declared an end to Silicon Valley’s hegemony, and even today there are prognosticators who see growing threats from innovation centers in India and China. Certainly, great technology ideas can come from anywhere, but they keep coming from Silicon Valley because of two related factors: increasing returns and first-mover advantage.
These twin principles, debated in head-scratching terms by professional economists, essentially explain why Intel maintains a lead in high-performance chips, why Apple sustains a large lead in music players and why Google’s search engine remains a crowd pleaser.
Here's a reasonably good explanation of where increasing returns fit into the what we think we know about economic development: