The Monday Interview: Paul Krugman; Keeping the barbarians at bay

A superstar professor fights a lone crusade against the onslaught of fashionable economic notions. He spoke to Diane Coyle

Most people, if they have an image of an economics professor at all, will probably think of some shambling chap who is marked above all by his inability to communicate with normal folk.

Paul Krugman, one of the world's superstar economics professors, is a researcher in the field of economic geography. But he is utterly unable to give me directions to his office: he does not know where it is exactly. So far, so good for the stereotype.

However, Professor Krugman is overwhelmingly able to communicate. His conversation is fast and funny, refreshing in a profession still recycling jokes that date back to Adam Smith. He expresses superbly trenchant opinions about economics - and economists.

Some of the latter are a mite unflattering. For example, he has taken to task Lester Thurow, whom he will be joining as a colleague at the Massachusetts Institute of Technology in the autumn, for not being very good with numbers and stumbling over economic basics. In an essay criticising one of Professor Thurow's books on America's competitive struggle, he said: "Everyone makes mistakes, although it is surprising when men who are supposed to be experts on international competition do not have even a rough idea of the size of the US trade deficit."

The contretemps stems from Professor Krugman's rejection of Thurow's pessimistic views about the "globalisation" of the world economy - "globaloney" as he describes it. For the past three years, Paul Krugman has waged war against the fashionable notions that countries are engaged in a competitive fight to the finish (countries do not go out of business, he points out) and that trade is somehow bad for the Western industrial nations.

"I had to turn from advancing the frontier to fighting a rearguard action," is how he describes his diversion from the academic ivory tower to the rough and tumble of public policy. "I now have a lot more respect for the policy wonks who say the same sensible things again and again. I am tired of having to defend the basics of logic against well-funded barbarians."

The barbarians are those who blame foreigners - it used to be the Japanese, now any other productive Asians - for America's economic woes. These are, variously, the shrinking manufacturing base, the trade deficit, downsizing and unemployment, and falling wages at the bottom end of the income scale. Professor Krugman points out that the manufacturing sector has been in decline for half a century, as in all the industrial countries. The US unemployment rate is one of the lowest in the West.

He goes on to calculate how big a part the trade deficit could have played in destroying jobs in manufacturing and reducing blue collar wages. The figures suggest it cannot have been very much as the US has not traded enough with cheap labour countries for them to account for more than a small fraction of the losses. He agrees about the direction of the effects the fashionable pessimists worry about, but not the size. "The big questions about trade and technology are a bit like global warming," he says. "The principle is not in doubt, but it is a question of scale." This makes getting the numbers wrong the height of irresponsibility.

He is still frequently invited to business conferences to represent the voice of reason against the barbarian tide - and usually finds himself in a minority of one, he adds. However, welcome as this work is as a supplement to an academic salary, his interest now is economic geography. This is a once-defunct subject that Professor Krugman has resuscitated almost single-handedly. It is even described as the New Economic Geography these days.

Understanding regional economies is an extension of his interest in international trade. The difference between a region and a country lies in the absence of barriers between regions.

Barriers between nations do not have to be very high to alter economic behaviour. For instance, there is at least 10 times as much trade between Canadian provinces as between a Canadian province and a US state, despite the cultural similarities between the two countries and the near-complete freedom to trade across the border. "In a place where a border ought not to matter it clearly does," he says.

Economic theory predicts that regions will develop specialisations once the process is started by accidents of history and location. The reason is that economies of scale, along with spillover effects such as the exchange of technical know-how and creation of a skilled labour pool, tend to favour clusters of very similar businesses. The phenomenon is well-documented, especially by management experts such as Michael Porter.

These clusters become self-sustaining and very specialised. For example, Silicon Valley in California and Route 128 in Massachusetts are both important centres for information technology businesses. But Silicon Valley specialises in stand-alone PCs, while Route 128 focuses on mainframes running dumb terminals and the very similar network technology.

Professor Krugman observes that because of the absence of internal barriers, US regions are much more specialised than European ones. The US has Hollywood; each European country has its own movie industry. As barriers to trade and movement in Europe are removed, there will be economic pressure to concentrate movie-making in one location, he predicts. "If Europe goes that way we are talking about massive industrial restructuring. And if Europe becomes as integrated in economics as the US but not as politically integrated there will be some obvious things to worry about."

What's more, European cities are smaller than they would be if the Continent were all one country. "Europe ought to have a city of 30 million people. What would the French do if it turned out not to be Paris?" he ponders.

Cardiff and Edinburgh, he points out, are smaller than they ought to be for the size of the Welsh and Scottish economies, mainly because Britain is such a centralised country with an out-of-proportion capital.

"Devolution could be bad for London," he warns. But would it be good or bad for Welsh and Scottish bids to attract inward investment?

Professor Krugman replies with an anecdote. "I have given the southernmost economics lecture in history, in Tierra del Fuego - although it was on the north side of town, so somebody could still give one on the south side of town."

Visiting the end of the earth to lecture Argentine businessmen, he expected to find that fishing was the dominant local industry. Not at all. It turned out to be electronics, thanks to investment incentives provided by the Argentine government.

The moral is that tax breaks can temper the strongest economic forces. It looks a safe bet that research into the apparently abstract field of economic geography will not keep the crusading Professor Krugman out of policy controversies for very long. And economic policy will be the better for it.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk