Diversity and the Case Against Specialized Clusters

Abstract

The geographical concentration of related manufacturing and service firms is as old as economic development but it has drawn renewed attention in the last two decades in the wake of the spectacular growth of regional economies such as Silicon Valley (South San Francisco Bay), Route 128 (greater Boston area) and the 'discovery' of numerous manufacturing districts in locations ranging from Denmark and Italy to Thailand and Japan. While contemporary policy prescriptions that built on geographically-localized, related and interdependent firms can be traced back to the 'growth poles' and 'growth centers' strategy of the 1950s and 1960s, the most appealing to policy makers in recent times has been the 'cluster' strategy put forward by Harvard Business School's Michael Porter. In short, this approach suggests that the geographical concentration of firms working within a particular field raises their productivity, innovativeness, competitiveness, profitability, and job creation capacity, and therefore that of their immediate and wider geographical areas. Over the years, many policy makers have followed Porter's approach. Despite its widespread adoption, the cluster-based development strategy has been criticized on many counts, ranging from the fuzziness of the concept to its status as a rationale for arbitrary industrial policy. Perhaps the main problem with clusters remains the inevitable 'difficulties faced by many formerly successful, but specialized old industrial areas [which] provide clear evidence that territorially based advantages may mutate into liabilities'. Building on insights that have long been known to regional development specialists and on more recent ones, this essay reexamines the case against regional specialization by pointing out that it is more likely to result in economic downturns, to prevent the spontaneous creation of inter-industry linkages, and to hamper the creation of innovative ideas through the combination of existing know-how and artifacts than a more diversified economic base.