What Is an Economic Cluster Anyway?

Cluster theories for explaining geographically distinct areas of economic activity have guided state and local economic development policy to varying degrees for the past 25 years. Encouraging cluster growth will be hot in one state’s strategies to encourage growth while cooling or completely absent from its neighbors.

The confusion as to what works and what doesn’t for cluster development extends well beyond the level of practitioner, however. The more abstract and theoretical world of academic research also suffers from muddled language in attempts to be original and shared terms with more than one meaning.

It essentially boils down to one man’s cluster is not necessarily another’s.

A recent working paper by Peter Maskell, on the faculty of the Copenhagen Business School and one of the major contributors to understanding regional innovation systems, and his colleague Leila Kebir, dares to answer the question, What Qualifies as a Cluster Theory?

The paper, released through the Danish Research Unit for Industrial Dynamics (DRUID), investigates the theoretical backgrounds of the "cluster" and proposes a framework aimed at drawing the contour of cluster theory.

The authors point out so much attention has been paid to the concept in such a mishandled matter that “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.”

[Editor’s Note: This observer at the May 2005 meeting of Canada’s esteemed Innovation Systems Research Network http://www.utoronto.ca/isrn/web_files/working_papers.htm as wondering the same thing with the concluding session’s title, “Cluster Theory Evidence: What Remains of the Concept?” That’s one of the reasons SSTI is looking forward to the breakout session at its ninth annual conference entitled "Rethinking Regional Innovation and Change." See the conference program for more a session description and registration information: http://www.ssti.org/conference05.htm%5D

Maskell and Kebir begin by identifying four fundamental issues associated with the cluster concept:

* the economic and social benefits that may accrue to firms when clustering or co-locating;

* the diseconomies encountered when clustering exceeds certain geographical and sectoral thresholds (the extension argument);

* the advantages obtained by exploiting intra-cluster synergies rather than engaging in external interaction (the exchange argument); and,

* the possible erosion of economies and onset of diseconomies over the lifecycle of the cluster (the exhaustion argument).

Each of these four 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 local spillovers or externalities (illustrated by the Marshall’s work on "Industrial districts"); on a competitiveness issue (illustrated by Michael Porter’s theory of cluster growth); and, on a territorial perspective (illustrated by the approach emerging from research by the European Research Group on Innovative Milieux, or more commonly, GREMI).

The policy implications and limitations of each theoretical approach are then considered, drawing the authors and readers to the sobering conclusion:

"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."

What Qualifies as a Cluster Theory? is available at: http://econpapers.repec.org/paper/aalabbswp/05-09.htm
Links to this paper and more than 1,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

Copyright State Science & Technology Institute 2005. Redistribution to all others interested in tech-based economic development is strongly encouraged ­ please cite the State Science & Technology Institute whenever portions are reproduced or redirected.