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What Qualifies as a Cluster Theory?

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 DRUID Working Paper No. 05-09

What Qualifies as a Cluster Theory?

By

Peter Maskell and Leïla Kebir

www.druid.dk
 What qualifies as a cluster theory?

Peter Maskell

DRUID
Department of Industrial Economics and Strategy (IVS)
Copenhagen Business School (CBS)
Solbjergvej 3, 3 floor
DK-2000 Frederiksberg, Denmark
E-mail: [email protected]

Leïla Kebir

Institute for Regional and Economic Research

University of Neuchtel, Switzerland
Phone: + 41 32 718 14 00
Fax: + 41 32 718 14 01

Presently at: CAMS, Ecole des Hautes Etudes en Science Sociales

Bvd. Raspail 56, 75006 Paris, France
Phone: +33 1 49 54 20 32, fax : + 33 1 49 54 21 09
E-mail: [email protected]

Abstract:
This paper investigates the theoretical backgrounds of the “cluster” and proposes a framework
aiming at drawing the contour of cluster theory.

The profundity of the notion of ‘clusters’ is arguably conditional on the coherence of three
fundamental issues associated with the concept: 1) the economic and social benefits that may accrue
to firms when clustering or co-locating (the existence argument); 2) the diseconomies encountered
when clustering exceeds certain geographical and sectoral thresholds (the extension argument); and,
finally, 3) the possible erosion of economies and onset of diseconomies over the lifecycle of the
cluster (the exhaustion argument).

Each of these three issues is examined in terms of three relevant major theoretical frameworks that
can be brought to bear on the cluster concept. The paper considers approaches based on the idea of
externalities (illustrated by the Marshall's work on ‘Industrial district’); on competitiveness issue
(illustrated by Michael Porter’s theory of cluster growth); on a territorial perspective (illustrated
by the GREMI approach).

www.druid.dk
The paper acknowledges the general shift in explanatory emphasis from considerations of static
cost efficiency towards more dynamic interpretations that highlight the creation and use of
knowledge as their pivotal theoretical element. By placing these changes within a common
conceptual framework the paper shows how different theoretical solutions provide distinct points
of departure for subsequent policy recommendations. Three distinctive groups of solutions are
identified focusing respectively on local spillovers, on competitiveness and on the region and its
development. The paper concludes by identifying areas of particular ambiguity where further
theoretical work is most urgently needed.

Key words: Cluster, cluster theory, industrial district, innovative milieu, regional policy

JEL Codes: L22, R10, R58

ISBN 87-7873-173-9

www.druid.dk
1. Introduction

Clusters may be defined as non-random geographical agglomerations of firms with similar or

closely complementary capabilities (Richardson 1972, Ellison and Glaeser 1994)1. Even
though they are studied under many different labels2 the terminological diversity cannot hide
the fact that the cluster phenomenon as such has attracted increasing attention during the last
fifteen years. A simple quantitative illustration of the avalanche of recently published
academic papers in this field is attempted in Table 1.

The sudden surging interest is no unquestioned blessing. Few would, even at the outset, feel
tempted to accuse the cluster literature at large for being overly concerned with precise
definitions of important constructs or burdened with excessive specifications of the exact
nature of the processes involved (Maskell 2001, Martin and Sunley 2003). The multitudes of
existing contributions have mostly been concerned with making sense of empirical findings
rather than contributing to the discovery of the serene and luminous expanse of conceptual
clarity where all may meet and expatriate together. On the contrary one often finds an
unfortunate habit of introducing novelty by making slight changes to the explicitly stated or
implicitly applied definition of core concepts, or by importing constructs and variables from
neighboring schools of thought without any impeding sensitivity towards the inherent
theoretical and methodological tensions between what are, in essence, not completely
parallel lines of inquiry.

1
Whether the firms are functionally connected or not is thus an empirical question, not a feature of the core
definition. A lot of confusion has been occasioned when nesting concepts of functionality and proximity.
2
Some of the common synonyms may have the same essential meaning as conveyed by using the cluster
concept. Yet they can differ in peripheral meaning by their implications (usually involving some minor idea or
underlying assumptions in the meaning of the concept), connotations (usually including ideas that color the
meaning of the concept often by providing historical or literary associations) or applications (usually the result of
current idioms that have established restrictions on the use of a particular term). Marshall's (1890) initially
general or generic term of 'the industrial district' is, for instance, now often applied when wishing explicitly to
emphasize the values and norms shared by collocated firms (see Brusco, 1982 among many others). In other
cases will singular academic contributions based on a particular term over time have developed into distinct
schools of thought.2

1
 Table 1.
Cluster publications 1953-2004
Number of articles, published in scholarly journals within the social sciences with the term 'cluster’,
its synonyms, or its more distant cousins in the title or in the abstract or among the keywords.
1950s*-
Term looked up in database 1990s 2000s**
1980s
Frequency
Cluster(s)/clustering of firm(s) 0 9 15
Agglomeration 74 305 380
- geographic(al) agglomeration(s) 0 4 7
- spatial agglomeration(s) 3 17 23
- agglomeration(s) of (same industry) firm(s) 5 71 50
Geographic(al) concentration(s) 3 32 51
Spatial concentration(s) 7 32 30
Localised/localized industries/firms 0 5 7
Growth pole 9 12 5
Innovative milieu(s) 0 26 8
Industrial district(s) 10 126 95
Note: Though the table is based on the best current representation of the development within scientific journal publishing its
inherent methodological problems should not be disregarded. Terms belonging to academic traditions that rely heavily
on books are underrepresented by definition. The same apply to terms used mainly outside English language
journals. Many radical and experimenting journals are never included in the ISI database because of a common
'curfew' period of ten years from the time the first volume appears before it is considered for inclusion. The number of
journals published has been rapidly increasing during the period investigated and so has the number of journals
included in the database. The selection criteria used in the table has been carefully chosen but are admittedly
imperfect in many ways and should, of course, not be taken to imply anything about quality, academic significance or
the relevance of the terms included. * Only including articles in journals included in the database and published
January 1, 1953 to December 31, 1959., **Only including articles in journals included in the database and published
January 1, 2000 to September 30, 2004.
Source: The table is based on a privately owned but publicly accessible database available through ISI Web of Knowledge
<http://isi3.isiknowledge.com/portal.cgi/wos>. A search for each term for all years (1953-2004) was made for
published articles only. An element of discretion was applied as entities were deleted from the list of results if deemed
irrelevant for the purpose of this chapter (for example, 'Localized industrial melanism in the spittlebug…' and 'Teenage
childbearing in Great Britain and the spatial concentration of poverty households').

So while the cluster concept and its synonyms are still in great demand for current analytical
and policy purposes a scholarly practice has developed that might lead to their premature
dismissal.

Paraphrasing Reich (1990: 925) we run, perhaps, the risk that the cluster concept will join
those rare terms of public discourse that have gone directly from obscurity to
meaninglessness without any intervening period of coherence. In dejected moments it seems,
furthermore, as if an increasing proportion of current cluster studies and cluster policy
recommendations are at best only partly based on sets of formally connected statements, the

2
final point of which is the explanation of an independent world, and discouragingly few
empirical studies engage in thorough theory testing.3

It is, however, often easier to identify shortcomings than to fix them. What it needed is
arguably some criteria or instrument whereby the theoretical core of the various line of
thought in this field can be made more explicit.

In the next section we offer an attempt to contribute to this complex endeavor by explicitly
considering the basic building blocks crucial for the construction of any comprehensive theory
in the cluster field of inquiry. Within the limited space available it is, of course, only possible to
provide a skeleton of an argument and we must rely on future work to assist in adding
substance and supplying the contextual flesh needed for a fully satisfactory account.

In Section 3 we provide hints on how such work may be conducted by applying our scheme to
three currently significant approaches that take their point of departure in i) externalities
(illustrated by the Marshall's work on ‘Industrial district’); ii) competitiveness (illustrated by
Michael Porter’s theory of cluster growth); or iii) territories (illustrated by the GREMI
approach). In Section 4 we contemplate the prescriptive advice offered when following these
three current archetypal lines of inquiry. In Section 5 we make a few concluding observations
and identify the areas of particular ambiguity where further theoretical work is most urgently
needed.

2. What constitutes a theory in the cluster field?

Most academic disciplines harbor several competing epistemological positions and this field is
no exception4. For the task at hand we find it helpful to apply the simple framework, cultivated
by Whetten (1989), according to which a complete theory must address the questions of
'what', 'how', 'why' and usually also of 'when/where/who'.5 The phrase 'cultivated' implies that
this kind of framework can be found in numerous studies including, for example, the once
much cherished Introduction to Regional Economics where Edgar M. Hoover summed up
spatial economics in the question: "What is where, and why - and so what?" (1971:3). In
Whetten's later elaboration each of his questions will, when answered, provide a distinct
building block, needed for the construction of a theory.

3
See Hanson (2001) for an overview over recent attempts to test important features highlighted in the cluster
literature.
4
See Barnes (2001, 2002) for recent reflections on two such positions. Considerations of space forces us to
provide an admittedly rudimentary account of complex issues of theory building that under other and better
circumstances would require a full paper or more. We acknowledge recent attempts within economic geography
to reinterpret what theory is and to apply a definition much looser than that outlined above (e.g. Amin & Thrift
2000), but have not yet come across published contributions that have applied this novel interpretation within the
field under scrutiny in this paper.
5
See further Dubin (1987), Gagliardi (1999), Lengnick-Hall and Wolff (1999) and Sutton and Staw (1995).

3
First, confronting the question of 'what' will lead to identifying factors such as variables,
concepts or constructs considered important for the explanation.6 Second, facing the question
of 'how' provides causal links between these factors to form an ordered and explicit pattern of
connections and relations. Taken together, the answers to questions of 'what' and 'how'
constitute the field or subject of the theory.

Third, it is when answering the question of 'why' that we find the core of the theory. In order to
be convincing 'why' must offer logical and compelling justifications for the factors included
('what') and for the links suggested ('how'). 'Why' also generates propositions that can
establish new insights, challenge entrenched views and deepen our understanding of the
phenomenon investigated. The explanatory and prescriptive quality and strength of any
theory is often directly dependent on the solidity and novelty of the way in which 'why' is
approached.

Forth and finally, 'when/where/who' adds contextual conditions and temporal or spatial
limitations on the propositions generated and spell out the circumstances where the theory is
unlikely to hold (Whetten 1989).7

According to this scheme, the profundity of the notion of clusters is thus conditional on the
coherence of the reasoning when addressing the pivotal 'why'8. This was, by the way, also
noted by Hoover a quarter of a century ago. He pointing out, long before Krugman, how
'[t]raditional geographers, though directly involved with what is where, lacked any real
technique of explanation in terms of human behaviour and institutions to supply the why, and
resorted to mere description and mapping' (1971:4, original italics).

However, the task of addressing the crucial 'why' is complicated by the fact that it is less than
totally satisfactory to provide even a very compelling account for the economic and social
benefits that firms may accrue when collocating (the cluster existence argument) without also
including an explanation of the diseconomies encountered when exceeding certain

6
Other epistemological positions may argue that conceptualization is theory building, and thus protest against
lumping variables, concepts and constructs into one single group. We assert that conceptualization represents a
step towards theory building by providing important building blocks, but that concepts as such have no
explanatory or predictive power.
7
In Hoover's phrasing '[w]here' referred to the location in relation to other economic activities involving
'questions of proximity, concentration, dispersion and similarity or disparity of spatial patterns...' (Hoover 1971:3).
8
However, some theoretical contributions become known mostly for the specific and often novel way by which
they confront the 'when/where/who'. The 'when' is, for instance, prominent in Piore and Sabel’s (1984) much
quoted book on The Second Industrial Divide, in which a significant theoretical contribution to the cluster
literature is placed within an explicit timeframe of Fordist versus post-Fordist modes of production, while Steven
Klepper’s (2002) analysis of the formation of Detroit as a durable cluster of car manufacturing highlights 'who' by
emphasizing the pivotal role of successful entrepreneurs who spun-off from the incumbents that survived the first
dramatic shakeout in the industry. Klepper's cluster contribution is thus also an important supplement to
mainstream economic assumptions of how prices a whisker above competitive levels attract new entrants.

4
geographical and sectoral thresholds (the extension argument).9 Without the latter we end up
with a theory that claims that all kinds of activities from all corners of the world will ultimately
end up at one single location because of the unrestricted benefits of collocating once the
process gets started and the very first cluster is formed. A scrupulous treatment of 'why'
would, in addition, also include an exhaustion argument that spelled out the internal or
external conditions that made previous decisive collocation benefits turn sour during the
lifecycle of the cluster. When the existence argument is undermined the clusters’ vitality
becomes threatened and the final demise might become immanent.

In the next section we examine three different lines of inquiry within the cluster field in a
deliberately broad sense. In each case we attempt to identify the theoretical elements
discussed above in order to show their general applicability across particular lines of
investigation.

3. Three sets of illustrations

Contributions with a focus on local spillovers

Since Marshall's initial reflections on the cluster issue were published in 1890 they have
formed the cornerstone of much subsequent thinking.10 Even though his 'industrial districts'
only occupied a fraction of the grand explanatory scheme developed in Principles his specific
interest in such cluster phenomena is about the (uneven) distribution of economic activity over
space, and more specifically about the tendency for related firms to collocate at certain places
over prolonged periods of time. The core variables are thus firms' (different) location
requirements and economies external to the individual firm but internal to the district ('what').
Firms are linked directly by business (supply and purchase) relations and indirectly through
the market for labor and for private or public services. Locational economies or "spillovers"
are initially perhaps unanticipated outcomes of a successful match between firms' location
requirements and the supply of location factors ('how'). Additionally, the Marshallian
framework has from the very beginning included the entire set of 'why' arguments set out in
the previous section. The existence argument was balanced by an extension argument
through the effect of the simultaneous centripetal and centrifugal forces that together
determined the geographical pattern of firms’ location. The centripetal forces often consisted
of cost advantages in transportation or when sharing an environment made particularly

9
The extension arguments are usually based on some specific combination of diseconomies of scale (see
further below).
10
Two current traditions derive directly from this rich source. One is the predominantly Italian Industrial District
literature that focus on the way in which large firms may be matched or even out-competed by flexible
arrangements of a myriad of independent, small firms working together within a confined area i.e. a Marshallian
Industrial District. The other tradition with direct roots in Marshall’s initial contribution is the Knowledge-Based
Theory of the cluster (see Maskell and Malmberg 1997, Maskell 2001, Malmberg and Maskell 2002, Bathelt et al.
2004) that emphasizes the role of knowledge formation when addressing the 'why' and its three components: the
existence, the extension and the exhaustion argument.

5
agreeable by, for instance, a dedicated infrastructure, a pool of notably skilled labor, an
educational systems of distinctive relevance, a fine concentration of specialized suppliers etc.
but went much further when including many of the less easily measured factors such as
rivalry, search costs, institutional factors and various positive spillovers along both the vertical
and horizontal dimensions of the cluster (Loasby 1999, 2000).

The extension argument of centrifugal forces was, in contrast, normally based on the costs of
congestion, or the bidding-up of prices for land, labor or the services or goods provided, but
could be extended to include negative spillovers when different industrial logics clashed.

The exhaustion argument allowed for some vital factor (for instance a mineral deposit or a
climate or transport benefit) to have been fully exploited or otherwise discontinued.

It is, perhaps, at this stage worth noting how later generations of mainly Anglo-Saxon scholars
by deliberate decision or by following the prevailing tradition in contemporary economic
geography gradually turned to producing very descriptive, ideographic work.11 The crucial
'why' was, consequentially, more often assumed or implied rather than carefully investigated
and specified. It was almost as if all three concerns in 'why' - i.e. the existence, extension and
exhaustion accounts - gradually became considered so self-evident that no discussion or
investigation was required (Feser, 1999). When the new wave of interest in the cluster
phenomenon started growing a decade or two ago the former coherent explanatory model
had thus largely disappeared.

With a few significant exceptions it was replaced by a one-sided model that addressed the
existence argument in novel ways but almost totally disregarded the extension and
exhaustion arguments. Many recent contributions stem, for instance, from the basically
Marshallian belief (whether sustained by empirical evidence or not) that collocated firms
benefit from the ease of identifying and communicating with suited partners in their vicinity
(low search costs) or from their ability to bridge cognitive gaps that enabled them to
understand motives and desires that under other circumstances would remain opaque. By
reducing the costs of co-ordination and by overcoming problems of asymmetrical information
the process of clustering enables, it was maintained, a deepening of the local division of labor
so that a higher level of specialization and knowledge creation may come within reach. The
existence argument is thus based on the combined advantages of social coherence, relational
flexibility, and ease of intra-cluster interaction, as well as the deepening of the local

11
The descriptive tradition was apparently less pronounced on the European continent perhaps because of the
strong economic and later also sociological tradition for abstract reasoning within the field (e.g. Weber 1909). In
contrast, the research tradition set out by George Goudie Chisholm in the UK and furthered by Dudley Stamp
became known for its focus on the assembly and ordering of concrete facts and detesting the abstract theorizing
about deeper reasons or chains of causality (ridiculed in Robinson's (1908: 251) remark that it was so kind of the
good Lord to have made the great rivers run through the great cities). Yet some of Chisholm's surviving
notebooks cast a somewhat different light on his interests and research agenda (Chisholm 1868).

6
knowledge base that it occasion, while the extension and the exhaustion argument has
attracted considerably less attention if any at all.12

One of the most notable exceptions to this trend is Michael E. Porter, to whom we shall now
turn.

Contributions with a focus on competitiveness

Few contributions to the cluster literature have gelled the interests of a generation of scholars
as Michael E. Porter’s work on competitive strategy. The commotion occasioned by his 1990
book and supported by his subsequent cluster-related papers has helped fulfill his prophecy
that 'economic geography must move from the periphery to the mainstream' (Porter 1994:
38). Most bright second year students of business, strategy, management or economic
geography will now probably be able to reproduce his famous ‘diamond’ model where the
boxes addresses the 'what' while the connecting arrows (and the accompanying explanation)
take on the 'how' in his theory. Students will most likely also be well aware of the fact that his
main aim was to provide not a theory of the cluster, but a 'theory of national, state, and local
competitiveness within the context of a global economy.' (Porter 1998: 197). As he initially
explained:

The basic unit of analysis for understanding national advantages is the

industry. Nations succeed not in isolated industries, however, but in
clusters of industries connected through vertical and horizontal
relationships. A nation's economy contains a mix of clusters, whose
makeup and sources of competitive advantage (or disadvantage)
reflect the state of the economy's development (Porter, 1990a:73).

In spite of not aiming at creating a theory of the cluster he does, nevertheless, address the
'why' in ways that meet the criteria set out in Section 2. His cluster existence argument
includes the way in which proximity (also in the form of shared culture and low transaction
costs) makes: 'Benefits flow forward, backward and horizontally. Aggressive rivalry in one
industry tends to spread to others in the cluster' ....'exchange of R&D and joint problem
solving lead to faster and more efficient solutions'.... 'Suppliers also tend to be a conduit for
transmitting information and innovation from firm to firm. Through this process, the pace of
innovation within the entire national industry is accelerated. All these benefits are enhanced if
suppliers are located in proximity to firms, shortening the communication lines' (Porter 1990a:
151 & 103). He later spelled out how '[D]developing clusters also attract - and cluster
participants seek out - people and ideas that reinforce the cluster. Growing clusters attract
skilled people through offering greater opportunities. Entrepreneurs or individuals with ideas
migrate to the cluster from other locations, as well, because growing cluster signals

12
The extension argument is, however, explicitly addressed in, for instance, Maskell (2001).

7
opportunity. A cluster's success stories help attract the best talent' .... 'Cluster membership
makes possible direct observation of other firms' (Porter 1998: 241 & 221).
His extension argument is based on the old Marshallian duality of dispersing versus locating
activities (see Porter 1990a: 156-157) while his exhaustion argument includes a whole range
of potentially important intra-cluster forces (such as ebbing domestic rivalry, the development
of internal rigidities and regulatory inflexibilities) as well as a number of externally induced
influences (such as technological discontinuities, deteriorating factor conditions and shifts in
buyers' needs (Porter 1990:166-169 & 1998: 243-244).

Contributions with a focus on the region and its development

In contrast to the Porterian 'what', with its focus on competitiveness and neglect of issues
concerning uneven spatial development, the innovative milieu approach13 is concerned with
technology, organization and, most significantly, with territory. Together these three elements
is seen as constituting a localized initial context without frontiers in a strict sense, but
presenting a certain degree of unity in terms of identifiable and specific behavior (Maillat,
Quevit and Senn, 1993). The 'how', in turn, is addressed by introducing 1) a set of actors, who
are independent enough to make strategic choices when managing material and immaterial
resources; 2) a learning dynamic that reveals the actors' capacity for adapting to changes in
the environment; 3) an organizational logic according to which actors cooperate to innovate
and develop networks of interdependent commercial and non-commercial relationships
Maillat, Quevit and Senn, 1993).

The innovative milieu approach is much broader in its scope than Marshall's or Porter's
cluster theories but its does contain the three crucial elements of 'why' required to make a
theoretical contribution within the field dealt with in this paper. The existence argument is
based on a set of relationships that develops spontaneously within a given geographical area
and generates a localized dynamic process of collective learning. Together 'they act as an
uncertainty–reducing mechanism in the innovation process' (Camagni 1995: 320). An
innovative milieu thus stimulates the development of know-how and the formation,
development and vitality of innovation networks (Maillat, Quevit and Senn, 1993). 'It facilitates
mutual acquaintance, collaboration, dissemination and exchange of information, just as it
allows for the development of trust-relations. It offers options for reciprocal openness and for
disseminating know-how without any risk of unilateral appropriation, because the players

13
The concept was coined by the GREMI group. GREMI is an acronym for 'Groupe de Recherche Européen sur
les Milieux Innovateurs' or the European Research Group on Innovative Milieux, that was formed in 1986 to
study the interaction between innovations and localised factors (together termed ‘territory’) in particular in the
new French spatial dynamics - the retournement spatial - in order to explain different regional development
trajectories and the diffusion of new technologies (Aydalot 1986). Scholars working with this line of inquiry are
careful in stressing that no fully-fledged theory has yet been formulated (Crevoisier 2004:368).

8
share the same work ethic and a common will to cooperate' (Maillat 1998: 19). In short:
Innovative milieus help the local actors conceive, devise and complete their joint projects14.

The extension argument is based on the proposition that cooperation between actors leads to
the building of relational capital involving the mobilization of resources that are not necessarily
of a monetary nature. Local sets of values (entrepreneurial, family, professional, etc.) guide
actors to contribute towards innovation and production while making social investments that
permits them, ultimately, to cooperate on a basis of trust and reciprocity. The resulting
networks help maintain and reproduce the boundary between the innovative milieu and the
exterior in the sense that they define which actors constitute part of the local coordination
system and which do not (Crevoisier 2004: 371).

The exhaustion argument builds on the acknowledgement of how all milieus may lose
cohesion because individual interests gain the upper hand over those of the community, if
and when 'opportunistic behavior causes defiance or the outward openness becomes
inadequate to ensure the enlargement of new cooperative relations or the replacement of
technologies' (Maillat 1998:15). Consequently, territories differentiate and old industrial
fortresses disintegrate.

4. Prescriptive consequences

Within the common field of cluster theory each of the three specific lines of investigation
briefly introduced in Section 3 has a distinct perspective on the cluster phenomenon and
provide dissimilar justifications for the existence, extension and exhaustion of clusters that
could, perhaps, be developed into new propositions and testable hypothesis.

Our aim with the following is less ambitious: namely to point out some of the prescriptive
differences that stem from how theory is constructed in each of the three examples. In doing
so we restrict ourselves for reasons of space to focus on the realm of advice aimed at public
policy makers while acknowledging that cluster theory at large may also forward potentially
influential recommendations useful mainly or exclusively for managers or stake holders in the
business community.

Some policy suggestions are universal in the sense that they are rooted in all three cluster
theories when implicitly sharing the acceptance of the currently prevailing division of labor
between a private and a public sector, with the latter in charge of providing most of the
infrastructure, education and similar essential elements of general demand and applicability.
Others pieces of policy advice are more intimately associated with one or more specific
stream of theories and it is to these we shall now turn.

14
This research agenda represents a clear break from former French traditions in which large firms, with the
capacity to shape the territory and to generate innovation, used to occupy centre stage in the investigation of
spatial development issues (Matteacioli, 2002).

9
Policy contributions with a focus on local spillovers

If for the sake of brevity we allow ourselves to assume that Marshall's industrial districts follow
a lifecycle model, where stages of infancy are succeeded by increasing maturity and
subsequent stages of stagnation or decline, the framework developed in the previous sections
may be taken to suggest how each such stage can merit a set of specific public policies
distinctively different from what will be generally beneficial at the other stages.

At the infant stage, when firms with complementary or similar capabilities have started to reap
some of the benefits of collocation through experimentation or conjecture, the relevant public
policy options are mainly market conformist by supporting what is already in the making and
by helping to provide inputs in short supply. Infant stage policies include, for instance,
targeted labor mobility improving measures, specific educational efforts and vocational
training programs, dedicated initiatives to enhance creativity and collaboration, physical
infrastructure improvements, actions to develop competent seed and venture capital sensitive
to the particular requirements and structure of the local firms through taxation relief or by
redirecting public funds.

However, the abundant policy ambitions and initiatives to support and develop clusters in
recent years have mostly been concerned with the next, mature, stage of cluster
development. The important point is that precisely because the Marshallian cluster theory is
about self-organized, market-led dynamics, the processes emphasized by the theory largely
takes care of themselves. All policy initiatives in the mature stage of a cluster's life-cycle are
therefore at least partly misdirected.

Finally, when clusters for one reason or another reach the exhaustion stage the policy
challenge shifts from being supportive to becoming creatively destructive by actively disjoining
present means-ends designates and by dismantling institutions molded to accommodate and
support yesterday's economic structures. By assisting communities when faced with the need
to unlearn previously successful routines such policies provide cognitive and economic space
for new waves of entrepreneurial activity that might subsequently help put the cluster on a
new and promising track.

Interestingly, there appears to be a great local variation in the ability to unlearn. Some
clusters can inaugurate novel institutions and simultaneously dissolve obsolete ones while
similar or stronger efforts in other clusters are unsuccessful. In the volatile environment of the
current globalizing exchange economy such 'unlearning' capabilities might turn out to be of
paramount significance for the ability of clusters (as well as the larger entities of regions or
even nations) to attract firms and participate in sustaining their competitiveness in an already
established industry, or to rebuild competitiveness by developing new industries. In areas
under less fortunate circumstances, making an appropriate policy response is an even more
formidable task. In such difficult situations a successful outcome of even the most
energetically pursued and cleverly designed policies may appear so late that little remains to

10
be saved. More than one initially enthusiastic development agency have over the years come
to a complete standstill due to the numerous and complex difficulties that emerge when
renewal implies jeopardizing the interests of individuals or larger groups with the incentive
and power to prevent or impede the process in spite of the cost of their actions to the overall
society. Openness, and competition among different political entities provide what is arguably
the best check. While local coordinated action is usually a blessing, closely knitted local
power groups are thus often an unquestioned evil when uncomfortable decisions have to be
made.

Policy contributions with a focus on competitiveness

Given the overall and explicit aim of Michael E. Porter’s cluster theory it is no wonder that the
overarching emphasis is placed on establishing and maintaining competition. There is a
strong current running through the theory that the business sector, if left to itself, might easily
slip into unhealthy practices of cartels and monopolies that will, ultimately, prevent rivalry and
thereby undermine the cluster existence argument. Securing competition is therefore
undoubtedly the single most important policy recommendation emerging from his theory and
perhaps the only area where a strong and constant public presence and intervention is
required.

The second and optional role remaining for public policy makers is demanding. The
authorities must become catalysts and challengers that encourage and push enterprises to
raise their performance even though this can initially be unpleasant or painful for the firms
involved. It is to this end that Porter has advocated for strict product safety measures and
environmental standards long before such thoughts became fashionable and very long before
social responsibility became part of managerial rhetoric and practice. He realistically notes
that 'Most of the policies that would make a real difference either are too slow and require too
much patience for politicians or, even worse, carry with them the sting of short-term pain.
Deregulating a protected industry, for example, will lead to bankruptcies sooner and to
stronger, more competitive companies only later.' (Porter 1990b: 87).

Other kinds of governmental action have the limited prospect of being partially successful and
only if working in tandem with favorable underlying conditions in diamond model (the theory’s
'what' and 'how').

Finally, he argues consistently that the default recommendation for policy makers is of a
hands-off nature. He frequently warns against intervening in factor and currency markets and
stresses that '…in politics, a decade is an eternity. Consequently, most governments favor
policies that offer easily perceived short-term benefits, such as subsidies, protection,
arranged mergers - the very policies that retard innovation' (Porter 1990b: 87).

His disregard for the possible damaging consequences of successful clusters for a just and
even regional development is a direct consequence of his theory’s main focus on national
competitiveness. Cluster growth is a mean towards this end and no mercy should be shown

11
towards policy makers who wish to restrict this process due to some misdirected passion for
regions or places that bleed while fuelling the process.

Contributions with a focus on the region and its development

The completely opposite focus and recommendations can be found in the 'innovative milieu'
approach that views governmental policies and semi-public forms of governance in a much
less sinister light. The approach is not at all embracing the market economy nor does it hail its
alleged blessings. Firms are, in this view, not the only important actors and local synergy
could and should in some circumstances be enhanced through the creation from above of a
local ‘agent d’animation’ or cross-firm organizer.

Another area where local firms are seen to need a helping hand in the overall interest of the
region has to do with trans-border activities. Through public policy measures such activities
can encourage the inflow of ideas and exchange of resources beneficial for the region's
immediate and long-term growth trajectory. This line of argument is somewhat in parallel with
the recent thinking developed within the knowledge-based view of the cluster. Both
approaches point to areas of interaction with the outside world where the local dynamics may
be sufficient to maintain long-term sustainability and where explicit policy measures may be
warranted even during the mature stage. While collocated firms thus usually have a good
understanding of the relevant global technological frontiers they are often less well equipped
to monitor and grasp categorically new knowledge especially if organized differently. The
reason is that the clustered firm's international network of contacts to suppliers, customers
and immediate competitors does not automatically include novel developments along parallel
technological or commercial trajectories even when they are pertinent to future competitive
positions. Rather than making extensive efforts in generating and promoting local buzz
(Bathelt et al. 2004) through various forms of social engineering the main emphasis should
therefore be placed on external communication policies directed towards widening the horizon
and extending the reach of the local actors by confronting them with other equally competitive
or superior ways of how to organize and develop well-known local products or services.

It is quite characteristic of the 'innovative milieu' approach that the exhaustion process is seen
as containing the seeds for revival and new periods of flourishing. The innovative milieu is
envisioned as potentially able to utilize the tensions that emerge during the process of change
by guiding the localized production system towards a new state in which the territorial logic
continues to manifest itself. 'The result is a milieu that possesses specific resources, rules for
functioning, its own territory, and on a deeper level a technical culture and one of
interdependencies....The territory is thus both the imprint of the former functioning of the
milieu and the matrix of its transformation' (Crevoisier 2004: 374). If it does not succeed in this
turn-over process 'the localised production system disappears and the territorial logic gives
way to the functional logic' (Maillat 1998:21).

12
Common features across lines of investigation

Taken together, it is to some extent striking that regardless of the rather deep theoretical
differences between the three approaches discussed above they basically share the same
view when coping with derelict clusters. All argue that the main policy target in the post-
exhaustion restructuring process is to create room for novel private sector initiatives as swiftly
and effectively as possible rather that to pursue some governmental strategy of picking-the-
winner by applying a range of top-down measures.

In this they are probably very wise.

Countless well intentioned but ineffectual cluster policies from all parts of the world seem to
highlight the limits of the nation state, or any other political authority, in creating economically
sustainable competitive advantages by design from above. No kind of vogue phrasings or
remolded instrument packages can apparently alter the fact that the role of policy in the
development of cluster advantages can only be marginal, indirect and long-term. Results are
measured in decades if measurable at all.

5. A few final comments

The paper attempts to make four basic points.

The first is the simple claim that the theoretical underpinning of the recent deluge of cluster
studies is often less than totally clear. It is especially maintained that while the cluster concept
and its synonyms or more distant cousins are still in great demand for current analytical and
policy purposes, a scholarly practice has developed that might lead to their premature
dismissal.

The second point suggests that theory-development authorities might, in fact, have provided
tools helpful for identifying and highlighting the factors ('what'), relations ('how') and
justifications ('why') that together constitute the core of a theory. It is argued that by paying
more attention to disentangling the core elements of competing theories within this field some
insights might also emerge regarding their possible range of applicability.

The third point concludes that, in order to be convincing, a theory of the cluster must do more
than provide even a very compelling account for the particular benefits of collocation (i.e. the
existence argument). It must also include an explanation for the balancing forces that prevent
unconstrained cluster growth (i.e. the extension argument) and for the conditions that may
lead to the decline or extinction of the cluster (i.e. the exhaustion argument).

The fourth point concerns the difference in theory-constituting elements that emerge when a
closer look is taken at some commonly used approaches, and the dissimilar public policy
options that follow.

13
No thorough or fully satisfying account of any of these points has, of course, been possible
within the limited space available and much work remains to be done. Nevertheless, the
paper does illustrate how the three specific approaches investigated provide very dissimilar
justifications for the existence, extension and exhaustion of clusters that could, if given
sufficient care, be developed into new propositions and testable hypotheses. The usefulness
of many current cluster studies would be vastly improved if more effort was directed towards
developing critical hypotheses and using available empirical material, often painfully
assembled, for cautiously testing such hypotheses before prescriptive advice was offered.

What is urgently needed is further work aimed at distilling basic explanatory elements of some
of the many theories currently in play in the field and bringing them to trial by confronting them
with real world data. There are several reasons for this. First, such work is much needed in
order to get rid of explanations that simply do not hold true and to understand more precisely
the 'when/where/who' of the survivors. Second, such work is, of course, the only way in which
reliable prescriptive advice can be developed and offered to managers and policy makers.
Third, and most important for this field in academic terms, it is by engaging in such processes
that a new stage of theoretical progress may become possible.

14
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