The Specialization Myth

Many believe that cities, regions, and countries should specialize: they cannot be good at everything, so they must concentrate on their comparative advantage. But, while this idea seems obvious, it is both wrong and dangerous.

CAMBRIDGE – Some ideas are intuitive. Others sound so obvious after they are expressed that it is hard to deny their truth. They are powerful, because they have many nonobvious implications. They put one in a different frame of mind when looking at the world and deciding how to act on it.

One such idea is the notion that cities, regions, and countries should specialize. Because they cannot be good at everything, they must concentrate on what they are best at – that is, on their comparative advantage. They should make a few things very well and exchange them for other goods that are made better elsewhere, thus exploiting the gains from trade.

But, while some ideas are intuitive or obvious, they can also be wrong and dangerous. As is often the case, it is not what you don’t know, but what you mistakenly think you know, that hurts you. And the idea that cities and countries actually do specialize, and that therefore they should specialize, is one of those very wrong and dangerous ideas.

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