11
Local and regional development
A global production network approach
Neil M. Coe and Martin Hess
Introduction: regional In so doing, we seek to connect across two
development as neither ‘inside- by now well-established bodies of work
out’, nor ‘outside-in’… which have offered analytical perspectives on
the links between globalisation dynamics and
Regions have been central to the agenda of notions of ‘regional development’. On the
economic geography and the wider social one hand, the so-called ‘new regionalism’ lit-
sciences for at least twenty years now. erature has placed significant emphasis on
Processes of economic globalisation – as endogenous institutional structures and their
manifested, for example, in the expansion in capacity to ‘hold down’ global networks (for
the scale and scope of the activities of tran- an overview, see MacLeod, 2001). For exam-
snational corporations (TNCs) and neoliber- ple, Amin and Thrift (1994) coined the term
ally inspired inter-regional competition for ‘institutional thickness’ to encapsulate the
investment – have focused attention on the socio-cultural factors lying at the heart of
need for regional-level interventions among economic success, a notion encompassing a
a broad community of academics and policy strong and broad local institutional presence,
makers. In this chapter, drawing upon the a high degree of interaction among local
global production networks (GPN) perspec- institutions, the emergence of progressive
tive (Henderson et al., 2002) we outline a local power structures and the development
conceptual framework that seeks to delimit of a sense of common enterprise. In favoura-
regional development dynamics in a glo- ble circumstances, the outcome of institu-
balizing context. This approach focuses on tional thickness is argued to be a regional
the dynamic ‘strategic coupling’ of global economy characterised by dynamic, flexible
production networks and regional assets, an institutions and high levels of trust and
interface mediated by institutional activities innovation.
across different scales. Our contention is that
regional development ultimately depends on Appealing though such concepts are, the
the ability (or not) of this coupling to engen- functional connections between institutional
der processes of value creation, enhancement thickness and regional development have
and, most importantly, capture (Coe et al., been made far less clear. First, while institu-
2004). tional thickness may be a necessary condi-
tion for regional success, it is certainly not
128
LOCAL AND REGIONAL DEVELOPMENT
sufficient, as evidenced by many peripheral national scale, it has often had “surprisingly
regions with dense institutional networks little to say about regional and subnational
and yet relatively stagnant economies.Second, processes, because of the focus on the inter-
the necessity of purely local institutional national dimensions of commodity chains
building may be questionable in contexts and global divisions of labour” (Smith et al.,
where the re-scaling of national govern- 2002: 49). A related issue is the neglect of
ment/governance functions is giving greater regional institutions in shaping processes of
powers to regional economic institutions. In industrial upgrading. Whereas national and
reality, regional institutional configurations supra-national regulatory bodies have been
are often characterised by overlapping net- given consideration as institutional frame-
works of locally initiated institutions, those works for commodity chains, regional insti-
with powers devolved or ‘hollowed-out’ from tutions have hardly been mentioned,although
the national state, and regional ‘branches’ of their activities may be integral to capturing
national institutions.Third, and most impor- the value created in particular localities.
tant here, is the need to explore more fully
the interactions between extra-regional firm In this chapter, we argue that neither the
networks and institutional thickness, and ‘inside-out’ nor the ‘outside-in’ perspectives
their influence upon economic development. offered respectively by these two strands of
The critical factor for economic success is work is adequate in its own right: instead,
often not necessarily intense local networks, regional development is best understood by
but the ability to anticipate and respond to working at the intersection of these two
changing external circumstances: as Amin approaches. As such, it contributes to a dis-
(1999: 375) has argued, “it is the manage- cernible rapprochement between the two
ment of the region’s wider connectivity that literatures over the last few years. The new
is of prime importance, rather than its intrin- regionalism literature now undoubtedly places
sic supply-side qualities”. more weight on the extra-local dynamics
shaping economic growth within regions
On the other hand, work on inter-firm (both knowledge, capital and labour flows and
networks – such as the global commodity also the wider institutional structures within
chain (GCC) and global value chain (GVC) which regions are embedded) (MacKinnon
approaches – has been focused on the et al., 2002). Bathelt et al. (2004), for example,
organisational structures of global produc- describe the importance of both ‘local buzz’
tion systems and how particular regions ‘slot and ‘global knowledge pipelines’ in driving
into’ these networks with varying impacts on innovation and economic growth. (See also
the potential for industrial upgrading (Gereffi Bathelt, this volume.) Moreover, GCC/GVC
and Korzeniewicz, 1994; Gereffi et al., 2005). studies have become increasingly concerned
While analysis of the governance structures, with how regional clusters and industrial dis-
input-output systems, territorialities and tricts are incorporated into global produc-
institutional frameworks of global commod- tion systems, and the ensuing implications
ity chains has no doubt made important for local economic development and indus-
contributions to our understanding of devel- trial upgrading (Humphrey, 2001). Local
opment processes in a globalising world, such institutional formations are integral, for
work has received sustained criticism for example, to Neilson and Pritchard’s (2009)
some of its perceived conceptual shortcomings analysis of the position of the tea and coffee
(e.g. Dicken et al., 2001). Most important industries of South India in global value
here is the extent to which questions of spa- chains.
tiality and geographical scale have been inte-
grated into GCC/GVC analyses. Arguably, Our argument develops over three further
due to a seeming preoccupation with the sections. Next, we explain our conceptuali-
sation of the ‘strategic coupling’ of global
129
NEIL M. COE AND MARTIN HESS
production networks and regional econo- framework depends on the analysis of three
mies. Second, we evaluate the role of institu- interrelated variables. First, processes of value
tions of different kinds in mediating the creation, enhancement and capture are scru-
intersection of regions and production net- tinised. Second, the distribution and opera-
works. Third, we consider the limits to this tion of power of different forms within
conceptualisation, and explore the potential GPNs is considered. Third, the embedded-
for extending notions of regional develop- ness of GPNs – or how they constitute and
ment beyond what tend to be economistic, are reconstituted by the economic, social and
firm-centric approaches. Three definitional political arrangements of the places they
issues merit brief consideration before pro- inhabit – is investigated.
ceeding, however. First, and most prosaically,
we use the term‘region’as a‘taken-for-granted’ The GPN approach can usefully be distin-
sub-national scale of economic space. The guished from GCC/GVC approaches in five
wide range of cultural, political and historical key respects. First, through the explicit con-
forces behind the forging of regional spaces sideration of extra-firm networks, it neces-
is not our primary consideration here. sarily brings into view the broad range of
Second, our notion of regional development non-firm organisations – for example, supra-
is a relative one, and is not something that national organisations, government agencies,
can necessarily be measured by arbitrary trade unions, employer associations, NGOs,
quantifiable indicators of economic success. and consumer groups – that can shape firm
Regional development is seen as a process activities in the particular locations absorbed
that can be characterised as a local improve- into GPNs. Second, GPN analysis is innately
ment in economic conditions.Third, regional multi-scalar, and considers the interactions
development is, by definition, an interde- and mutual constitution of all spatial scales
pendent or relational process.The fortunes of from the local/regional to the global. Third,
regions are not only shaped by what is going this is an avowedly network approach that
on within them, but also through wider sets seeks to move beyond the analytical limita-
of relations of control and dependency, of tions of the ‘chain’ notion. Production systems
competition and markets. are seen as networked ‘meshes’ of intersect-
ing vertical and horizontal connections in
Global production networks, order to avoid deterministic linear interpre-
strategic coupling and tations of how production systems operate
regional development and generate value. Fourth, the governance
characteristics of GPNs are taken to be much
The GPN framework offers a heuristic frame- more complex, contingent, and variable over
work for understanding the developing geo- time than is suggested in GCC/GVC analy-
graphies of the global economy. It emphasises ses. Fifth, and finally, a central concern of
the complex intra- , inter- and extra-firm net- GPN analysis is not to consider the networks
works that constitute all production systems, in an abstracted manner for their own sake,
and explores how these are structured both but to reveal the dynamic developmental
organisationally and geographically. A GPN impacts that result for both the firms and ter-
can be broadly defined as the globally organ- ritories that they interconnect.
ised nexus of interconnected functions and
operations of firms and non-firm institutions This broad approach can usefully be
through which goods and services are pro- applied to understanding regional develop-
duced, distributed and consumed (Henderson ment in the contemporary era. Most impor-
et al., 2002). The operationalisation of the tantly from this perspective,analytical attention
must be paid to both endogenous growth
130 factors within specific regions and also to the
strategic needs of the translocal actors that
LOCAL AND REGIONAL DEVELOPMENT
coordinate GPNs, most notably large TNCs. development. These assets can produce two
Regional development can thus be concep- types of economies. First, economies of scale
tualised as the dynamic outcome of the com- can be achieved through highly localised
plex interaction between region-specific concentrations of specific knowledge, skills
networks and global production networks and expertise in certain industries. Second,
within the context of changing regional gov- economies of scope can exist if regions are
ernance structures. It is the interactive effects able to reap the intangible benefits of learn-
between these two fields that contribute to ing and the cooperative atmosphere – some-
regional development, not just either inher- times known as spillover effects – that come
ent regional advantages or the industrial from hosting a range of interconnected
structures of global industries. As a result, activities. However, the economies of scale
regional development is a highly contingent and scope embedded within specific regions
process that cannot necessarily be predicted are only advantageous – and bring about
by inventories of regional institutions or regional development – insofar as they can
broad positions in global value chains. complement the strategic needs of translocal
actors situated within global production net-
In this view, endogenous factors are neces- works. As shown in Figure 11.1, when such
sary, but not sufficient, to generate regional complementarity exists, a strategic coupling
growth in an era in which competition is process will take place through which the
increasingly global. There is no doubt that, advantages of regions interact with the stra-
for development to take place, a region must tegic needs of actors in GPNs.This strategic
benefit from economies of scale and scope coupling process has three important charac-
derived from the local human, technological teristics: it is strategic in that it needs inten-
and institutional resource base; the term tional and active intervention on the part of
‘regional assets’ can be used to describe both institutions and inward investors to
this necessary precondition for regional
Global production networks ‘Regional’ institutions
• Lead firms • Government agencies
• Subsidiaries, partners and • Labour organisations
suppliers
Strategic coupling Regional development Dependency and
process transformations
• Value creation
• Value enhancement
Regional assets
• Technology
• Labour
• Local firms
Figure 11.1 Global production networks and regional development.
Source: Authors’ research
131
NEIL M. COE AND MARTIN HESS
occur; it is time-space contingent as it is sub- that is characterised by a weakly organised
ject to change and is a temporary coalition; and abundant supply of labour, a virtual
and it transcends territorial boundaries as absence of finance capital and an unstable
actors from different spatial scales interact institutional structure. Endowed with differ-
(Yeung, 2009). ent configurations of assets, such regions are
likely to perform very different roles in terms
The coupling process is seen to work of value creation within global production
through the processes of value creation, networks. Second, it should be noted that
enhancement and capture. In GPN analysis, value takes on different forms across GPNs.
value is used to refer to the various forms of At the time when value is created in one
economic rent that can be realised through region, it may take a particular form, e.g.
market as well as non-market transactions relational rent extracted from relationships
within production systems. Rent is created with highly specialised suppliers. When this
in a situation where a firm has access to value is transferred to other regions, it may
scarce resources that can insulate them from take on other forms, e.g. technological and/
competition by creating barriers to entry for or brand-name rents. The potential multi-
competitors’ firms. Firms may be able to gen- plicity of rent forms indicates that the analy-
erate rents within GPNs in a number of ways sis of value creation and capture in regional
(Kaplinsky, 2005: 62–84): from asymmetric development must go beyond simply track-
access to key product and process technolo- ing the market values of goods and services
gies (technological rents), from the particular produced.
talents of their labour force (human resource
rents), from particular organisational skills The multi-scalar institutional
such as ‘just-in-time’ production techniques interface
(organisational rents), from various inter-
firm relationships involving the management The fact that a region is ‘plugged into’ a GPN
of production linkages with other firms does not automatically guarantee a positive
(relational rents) or from establishing brand- developmental outcome because local actors
name prominence in major markets (brand may be creating forms of rent that do not
rents). In certain sectors and circumstances maximise the region’s economic potential.
additional ‘exogenous’ rents may accrue to Hence, regional assets can become an advan-
some firms as a consequence of preferential tage for regional development only if they
access to natural resources (resource rents), fit the strategic needs of global production
the impacts of government policies (policy networks. The process of ‘fitting’ regional
rents), the uneven availability of infrastruc- assets with strategic needs of GPNs requires
ture (infrastructure rents) and the nature of the presence of appropriate institutional struc-
the financial system (financial rents). tures that simultaneously promote regional
advantages and enhance the region’s articula-
This conception of value as economic rent tion into wider networks. It is crucial here
has two significant implications for analysing that the notion of‘regional’institutions includes
regional development. First, different forms not only regionally specific institutions, but
of rent can be created and captured by actors also local arms of national/supranational
in GPNs meaning that regions may be best bodies (e.g. a trade union’s ‘local’ chapters),
served by focusing on the particular form and extra-local institutions that affect activi-
(or forms) of rent that suits their particular ties within the region without necessarily
configuration of labour, capital and state having a presence (e.g. a national tax author-
institutions.A region with a highly competi- ity). These multi-scalar regional institutions
tive labour market, an active pool of venture
capitalists and a pro-growth coalition of
institutions is very differently placed to one
132
LOCAL AND REGIONAL DEVELOPMENT
are important because they provide the ‘glue’ generated through network relationships and
that ties down GPNs in particular localities. hence varies according to the actors involved
in the network, the structural and informa-
Three dimensions of such institutional tional resources that they have at their dis-
structures are crucial to regional develop- posal, and the effectiveness with which they
ment.The first dimension involves the crea- are mobilised. Moreover, power structures at
tion of value through the efforts of regional a given point in a network will influence and
institutions in attracting the location of eco- be influenced by power structures at other
nomic activity, e.g. training and educating stages of the network. Power relations in
the local workforce, offering incentive pack- supply networks are therefore transaction
ages, promoting start-up firms and supplier specific. A GPN can be seen as a series of
networks, facilitating venture capital forma- exchange relationships, and variations in the
tion, and encouraging entrepreneurial activi- power balance along the network will affect
ties. Second, value enhancement essentially the ability of its members to capture value.
involves knowledge and technology transfer Equally, any given relationship cannot be
and processes of industrial upgrading. The purely about power as there is always a meas-
influence of regional institutions – govern- ure of mutual interest and dependency
ment agencies, trade unions, employer asso- involved.While the relationships among par-
ciations,etc.– can be especially significant here. ticipants are rarely symmetrical, participants
On the one hand, regional institutions may in GPNs to some degree depend on each
develop specific regional assets (e.g. research other and work together for mutual benefit.
capacity,supply networks,skills development) It is not just firms that are enmeshed in these
that underpin processes of upgrading for networked forms of power, but also a wide
local firms. On the other hand, regional insti- range of institutions – the state and various
tutions may work directly with lead firms in supra-state organisations, labour unions,
GPNs to help them develop their value trade associations, NGOs, etc. – that may also
enhancement activities as part of a move shape the structure and nature of GPNs.As a
towards higher quality inward investment. result, “GPNs resemble contested organiza-
Over time, more value-enhancement activi- tional fields in which actors struggle over the
ties may occur in these regions where lead construction of economic relationships, gov-
firms are induced to bring in their core tech- ernance structures, institutional rules and
nologies and expertise. The development of norms, and discursive frames” (Levy, 2008:
sophisticated local supplier networks may 944).Where this is perhaps most visible is in
also be important in enhancing the value the context of global North–South relations.
activities of lead firms through the ‘reverse’ While firms and industries in developing and
transfer of local knowledge and experience. emerging economies may experience vari-
ous forms of upgrading, as numerous studies
The third dimension of regional institutions have shown (e.g. Humphrey and Schmitz,
in promoting regional development rests with 2002; Scott, 2008), the challenge remains for
their capacity to ensure value capture. It is one regions – especially in the global South – to
thing for value to be created and enhanced in develop the institutional thickness necessary
some regions, but it may be quite another to ‘fit’ this upgrading with wider regional
for it to be captured for the benefit of development goals (see Coe et al. (2004), for
these regions. Issues of power and control are the example of BMW’s GPN in Germany
critical in the analysis of value capture. and Thailand).
Understanding power in GPNs necessitates a
move beyond ‘centred’ conceptions of power Arguably, the more a region is articulated
as an asset that can be accrued, towards net- into GPNs, the more likely it is to be able to
worked or relational understandings of power reap the benefits of economies of scale and
(Allen, 2003). In this interpretation, power is
133
NEIL M. COE AND MARTIN HESS
scope in these networks, but the less likely it cooperative set of state, labour and business
is able to control its own fate. A real risk in institutions that offer unique combinations
such relationships is the possibility of institu- of region-specific assets to lead firms in
tional capture, whereby the engagement GPNs. Overall, the capacity of regions to
between local institutions and external firms capture value is a dynamic outcome of the
is asymmetrical, leading to the direct and complex bargaining process between regional
indirect subsidisation of the activities of institutions and lead firms in global produc-
inward investors through economic develop- tion networks.
ment strategies that prioritise the needs of
such firms at the expense of indigenous firms What kind of regional
(Phelps, 2000). Christopherson and Clark development? Exploring the dark
(2007) similarly argue that the reality of sides of strategic coupling
power relations between GPNs and regional
institutions is that TNCs are able to co-opt In order to make the strategic coupling of
regional growth agendas in their favour, global production networks and territories
especially in terms of influencing regulatory work for local and regional development, it is
policy (e.g. concerning the commercialisa- important to bear in mind the profound
tion of innovation), driving the research power asymmetries which characterise the
agendas of publicly supported research cen- bargaining process that determines the loca-
tres and dominating the regional labour tion of value capture. As numerous studies
market in terms of both skills, and pay and have shown (see, for example, Phelps and
conditions. Importantly for these authors, Raines, 2003), the embedding of GPNs into
such dominance does not just reflect the regional economies is of course no guarantee
power of individual large firms, but also of positive developmental outcomes, even if it
wider, systemic aspects of neoliberal market results in new or enhanced opportunities for
governance (e.g. engendering inter-place value capture at the local level. Indeed,
competition). Another risk is the possibility depending on their position of power within
of institutional lock-in (Grabher, 1993) a network, some local firms may benefit from
whereby regional institutions are unable to their insertion into GPNs, contributing to
respond quickly enough to the rapidly chang- regional economic growth and innovation,
ing demands of GPNs and as a result either while other actors within the region may only
become disconnected from the network or receive marginal benefits or become excluded
trapped in a form of strategic coupling that in the process. In other words, although the
does not best utilise the region’s assets.This is articulation of regions in global production
particularly a risk in advanced economies networks can produce significant economic
with established institutional infrastructures. gains on an aggregate level, in many cases it
also causes intra-regional disarticulations, for
However,in certain circumstances,regional instance, through uneven resource allocation
institutions may mobilise their region- and the breakup of existing cultural, social
specific assets to bargain with transnational and economic networks and systems. This
firms such that their power relations are not ‘dark side’of strategic coupling not only affects
necessarily one-way in favour of the latter. firms and their growth potential, but also, and
The bargaining position of such institutions maybe more importantly, the opportunities
is particularly high when their region-specific and livelihoods of people and households, and
assets are highly complementary to the stra- hence raises serious questions about the nature
tegic needs of transnational firms (e.g. special- and distribution of the value generated,
ised knowledge pools in the biotechnology enhanced and captured within the region.
sector). The likelihood of value capture in
specific regions is generally enhanced by a
134
LOCAL AND REGIONAL DEVELOPMENT
Figure 11.2 provides a typology and exam- globalised regional development and the
ples of the negative consequences that can appropriation of value (cf. Phelps and Waley,
and frequently do result from the connec- 2004). For development policy, this means
tions between regional economies/territo- moving beyond the primacy of what
rial assets and GPNs (or lack thereof). On the Christopherson and Clark call investment
one hand, it is useful to think about both sig- regionalism (focused on overall economic
nificant changes in the level or existence of growth and value-added) to include the
region-GPN connections – ruptures – as reduction of intra-regional inequality through
well as ongoing areas of tension and contest distributive regionalism:“The search for ways
between different local and non-local actors to connect investment regionalism, centered
– frictions. On the other hand, by distin- on regional innovation systems, with distrib-
guishing between inter- and intra-regional utive regionalism, centered on equity, access,
effects, this typology also highlights Hudson’s and quality of life is a search for a model
(2007: 1156) argument that regions need to of sustainable economic development”
be conceived of as both territorial and net- (Christopherson and Clark, 2007: 148).
worked entities, “a product of a struggle
between territorializing and de-territorializ- For the concept of strategic coupling to
ing processes”. As the concept of strategic realise its potential (see also Coe et al., 2008),
coupling affirms, that struggle transcends ter- it is important to reconsider the meaning of
ritorial boundaries and involves actors at dif- regional development and the underlying
ferent geographical scales. In this context, it notions of value and innovation. By defining
is often implicitly assumed that harmonious value as various forms of rent – in addition
interests exist between ‘regional’ actors with to more conventional readings of surplus
regard to mobilising regional assets to meet value – a GPN perspective on regions empha-
the strategic needs of GPNs and thus improve sises the economic dimensions of development
regional development. In reality, however, in a way which is similar to many territorial
intra-regional conflicts of interest will arise innovation models (TIMs). In their critique
about the positive and negative impacts of of technologist and market-competition-led
development concepts, Moulaert and
Ruptures Between GPN and region Within region
Disinvestment Political exclusion
Exit of foreign firms Cutting local economic ties
Loss of foreign markets Displacement and eviction
… …
Frictions Uneven value capture Uneven resource allocation
Labour exploitation Social and class conflict
‘Clash’ of cultures Gender inequality
… …
Figure 11.2 (Dis)embedding global production networks.
Source: Authors’ research
135
NEIL M. COE AND MARTIN HESS
Nussbaumer (2005: 46) pointed out the dan- problem that shows the dark side of strategic
gers of a reductionist development view coupling. As illustrated in Figure 11.2, the
which largely neglects the non-economic political exclusion of some parts of civil soci-
dimensions of territorial development: ety, the disarticulation of existing regional
economies or growing gender inequalities
Most of the TIM models stress the are just a few possible outcomes that affect
instrumentality of institutions for eco- value creation, capture and the production of
nomic restructuring and improved com- livelihoods. Regional development policy,
petitiveness of regions and localities. therefore, in addition to pursuing a more dis-
But none of these models makes refer- tributive form of regionalism, must also be
ence to improving the non-economic open to the potential of strategic decoupling
dimensions and non-market-led sec- from some GPNs if the contribution of such
tions of economy in localities […] global ties to value creation and capture does
According to the TIM, quality of life not outweigh the detrimental effects for the
in local communities coincides with economy and society affected. It is important
growing prosperity and will be pro- in this context to bear in mind that no region
duced as positive externalities of higher or locality is completely detached from the
economic growth; no distinction is global economy, and while development in
made between well-being and growth, some places may be strongly linked to one
between culture and business climate specific GPN, in most cases regions are
and so on. inserted into a multitude of GPNs. Any
development strategy aimed at enhancing
To avoid such reductionism, strategic cou- economic well-being, social justice and par-
pling therefore needs to adopt a more com- ticipation/democracy must therefore reflect
prehensive view of what constitutes value decisions about which networks should be
beyond the firm and development beyond engaged with and which should be de-
the economic (Hess, 2009). coupled from, thereby actively shaping
the regions’ positionality with respect to
Outside the firm and corporate networks, wider economic systems.
value is created by people and households
when they try to produce their livelihoods Conclusion
through accessing and transforming availa-
ble resources. As Bury (2008: 310; emphasis Local and regional development is a highly
in original) argues, global players like contested and political process. By forming
TNCs can have significant impacts on this different, temporal and multi-scalar coali-
process: tions, a multiplicity of actors struggle over
the generation and distribution of value in its
TNC activities often affect what various forms and the ways to achieve social
resources households access in the pur- and economic development. GPNs and the
suit of livelihoods as well as how these regional contexts in which they ‘touch down’
resources are accessed.Thus,TNCs can create an open, dynamic relationship with
affect the rules and practices governing contingent developmental outcomes, a polit-
household access to resources as well as ical project based on multiple dimensions of
the different resource combinations power and agency on both sides.While some
utilized to produce livelihoods. literature (cf. Levy, 2008) assumes that hege-
monic power rests with global players and
This is not only an issue for developing econ- global structures, a GPN perspective on local
omies and extractive industries, from which
he draws his example, but a fundamental
136
LOCAL AND REGIONAL DEVELOPMENT
and regional development emphasises that Bathelt, H., Malmberg, A. and Maskell, P. (2004)
power relationships are reciprocal, but not ‘Clusters and knowledge: local buzz, global
necessarily symmetrical or exclusively in pipelines and the process of knowledge crea-
favour of non-local actors, with local institu- tion’, Progress in Human Geography, 28, 31–56.
tions and local civil society rendered power-
less.This chimes with Friedman’s (2006: 428) Bury, J. (2008) ‘Transnational corporations and
assertion that analytical approaches should livelihood transformations in the Peruvian
refuse “victimology and assume agency on all Andes: an actor-oriented political ecology’,
sides in the zones of encounter – not auton- Human Organization, 67, 307–321.
omy, or the freedom to act unimpeded by
others, but rather agency, the drive to name Christopherson, S. and Clark, J. (2007) Remaking
one’s collective and individual identity and regional economies: power, labor and firm strategies
to negotiate the conditions”. What consti- in the knowledge economy, NewYork: Routledge.
tutes regional development and how to
achieve it is at the centre of these negotia- Coe, N. M., Dicken, P. and Hess, M. (2008) ‘Global
tions. The concept of ‘globalising’ regional production networks: realizing the potential’,
development (Coe et al., 2004) as a process of Journal of Economic Geography, 8, 271–295.
strategic (de)coupling offers a lens through
which value creation, enhancement, and cap- Coe, N. M., Hess, M.,Yeung, H.W- C., Dicken, P.
ture by firms, institutions and households and Henderson, J. (2004) ‘Globalizing regional
can be analysed.Translating that analysis into development: a global production networks
concrete politics will require social innova- perspective’, Transactions of the Institute of British
tion to produce the necessary institutional, Geographers, 29, 468–484.
communication and governance structures
which ultimately determine local and Dicken, P., Kelly, P. F., Olds, K. andYeung, H.W-C.
regional, economic and social development. (2001) ‘Chains and networks, territories and
scales: towards a relational framework for ana-
Acknowledgements lysing the global economy’, Global Networks,
1, 89–112.
Many thanks to the editors of this volume
for their perceptive comments on an earlier Friedman, S. F. (2006) ‘Periodizing modernism:
version of the chapter.We would also like to postcolonial modernities and the space/time
acknowledge that this chapter draws on ideas borders of modernist studies’, Modernism/
developed jointly with Peter Dicken and Modernity, 13, 425–443.
Henry Yeung.
Gereffi, G. and Korzeniewicz, M. (eds) (1994)
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138
12
Evolutionary approaches to local and
regional development policy
Robert Hassink and Claudia Klaerding
Introduction mechanisms, namely knowledge spill-overs,
spin-offs, intra-regional labour mobility and
Local and regional development policies are networks (Cooke and Morgan 1998;Boschma
affected by policy-related theoretical con- 2008).Partly supported by national and supra-
cepts and they, in turn, are influenced by national support programmes and encouraged
meta-theoretical paradigms or turns in aca- by strong institutional set-ups found in suc-
demic writing. In the economic geography cessful regional economies such as Silicon
and regional planning literature, for instance, Valley in the USA, Baden-Württemberg in
there has been a cultural turn, a learning Germany and Emilia-Romagna in Italy, many
turn, a relational turn and most recently an regions in industrialised countries have been
evolutionary turn (Scott 2000), the latter setting up science parks, technopoles, techno-
being this chapter’s main focus. It aims first at logical financial aid schemes, innovation sup-
presenting some key evolutionary concepts port agencies, community colleges and
(Boschma and Frenken 2007; Martin and initiatives to support clustering of industries
Sunley 2006; Boschma and Martin 2009) and since the second half of the 1980s.The central
their relevance to local and regional develop- aim of these policies is to support regional
ment policy. endogenous potential by encouraging the dif-
fusion of new technologies. Since the mid-
Innovation has become the key focus of 1990s, these policies have been influenced by
local and regional development polices due to theoretical and conceptual ideas, such as
the increasing importance both of the know- regional innovation systems (Cooke et al.
ledge economy in general and of the regional 2004), the learning region (Morgan 1997)
level with regard to diffusion-oriented inno- and clusters (Enright 2003). These concepts
vation support policies (Amin 1999; Cooke originated in industrialised countries, but
and Morgan 1998;Asheim et al. 2003;Asheim have also recently become important for
et al. 2006b; Fritsch and Stephan 2005; developing and emerging economies, partic-
Klaerding et al. 2009; Boschma 2008). The ularly concerning regional innovation systems
regional level is more and more seen as the (Lundvall et al. 2006;Cooke et al.2004;Cooke
level that offers the greatest prospect for devis- and Memedovic 2003) and clusters (Schmitz
ing governance structures to foster learning in and Nadvi 1999; Schmitz 2004).
the knowledge-based economy, due to four
139
ROBERT HASSINK AND CLAUDIA KLAERDING
However, recently it has been increasingly by which the economic landscape – the spa-
doubtful whether lessons can be learned tial organization of economic production,
from successful regional economies in order distribution and consumption – is trans-
to create‘Silicon Somewheres’(Hospers 2006; formed over time” (Boschma and Martin
Hassink and Lagendijk 2001). Furthermore, 2007: 539). From evolutionary thinking the
the scale issue, that is, the role of the regional following notes are essential to local and
level vis-à-vis the national and supranational regional development policy: path depend-
level in supporting innovations, has been ence, lock-ins, path creation, related variety
critically evaluated recently (Fromhold- and co-evolution.These concepts can poten-
Eisebith 2007; Uyarra 2009). Finally, com- tially explain why it is that some regional
plaints have become louder about regional economies lose dynamism and others do not.
innovation policies becoming too standard-
ised (Tödtling and Trippl 2005; Visser and “A path-dependent process or system is
Atzema 2008). one whose outcome evolves as a conse-
quence of the process’s or system’s own his-
In this chapter we will argue that the evo- tory” (Martin and Sunley 2006: 399). Closely
lutionary perspective positively contributes related to the discussion around path depend-
to local and regional development policies ence and regional evolution is the issue of
by introducing some key explanatory notes, lock-ins hindering necessary restructuring
such as path dependence, lock-ins and co- processes in regional economies (Martin and
evolution. Moreover, it has a positive and Sunley 2006; Grabher 1993; Hassink 2009).
refining influence on existing concepts, that Grabher (1993) has defined these obstacles as
is, regional innovation systems and clusters, three kinds of lock-ins, which together can
in particular. In the following some key evo- be referred to as regional lock-ins. First, a
lutionary notes will first be presented in functional lock-in refers to hierarchical, close
Section 2. In Section 3, three policy-related inter-firm relationships, particularly between
concepts, namely the learning region, large enterprises and small- and medium-
regional innovation systems and clusters, will sized suppliers, which may eliminate the need
be discussed from an evolutionary perspec- for suppliers to develop critical boundary-
tive. Conclusions are drawn in Section 4. spanning functions, such as research and
development and marketing. Second, a cog-
Evolutionary thinking and local nitive lock-in is regarded as a common
and regional development policy world-view or mindset that might confuse
secular trends with cyclical downturns.Third,
Recently not only many economic geogra- and closely related to cognitive lock-ins, is
phers have introduced evolutionary thinking the notion of political lock-ins that might
into their discipline (Boschma and Frenken come up in a production cluster (Grabher
2007; Boschma and Martin 2009; Schamp 1993). Political lock-ins are thick institu-
2000; Martin and Sunley 2006; Frenken tional tissues aiming at preserving existing
2007); also in other disciplines, such as eco- traditional industrial structures and therefore
nomics, planning and sociology, this has been unnecessarily slowing down industrial
the case (Frenken 2007). In contrast to neo- restructuring and indirectly hampering the
classical theory, this school takes history and development of indigenous potential and
geography seriously by recognising the creativity.
importance of place-specific elements and
processes to explain broader spatial patterns The evolutionary perspective also con-
of technology evolution. Evolutionary eco- tributes to the understanding of the emer-
nomic geography deals with “the processes gence of new industries in a spatial perspective.
The theoretical concepts of windows of
140 locational opportunity and new industrial
EVOLUTIONARY APPROACHES TO LOCAL AND REGIONAL DEVELOPMENT POLICY
spaces both stress the locational freedom of territorial innovation models, see Moulaert
newly emerging industries, whereas path and Sekia 2003).
creation emphasises the inter-dependence
between paths and hence less locational free- Learning regions
dom. These concepts are highly relevant for
local and regional development policies, as Of the recently born offspring of the family
they can support policy-makers in predicting of territorial innovation models, the learning
where new industries might emerge (Martin region concept seems to be most focused on
and Sunley 2006). overcoming and avoiding regional lock-ins
(Schamp 2000; OECD 2001; Boschma and
Moreover, the evolutionary perspective Lambooy 1999b; Morgan 1997). Although
contributes to thinking about the relation- there are several definitions and perspectives,
ship between specialisation vs. diversification most scholars consider learning regions as a
and regional economic growth and stability regional innovation strategy in which a broad
(Frenken et al. 2007; Martin and Sunley 2006; set of innovation-related regional actors
Essletzbichler 2007). On the one hand, vari- (politicians, policy-makers, chambers of
ety is seen as a source of regional knowledge commerce, trade unions, higher education
spill-overs,measured by related variety within institutes, public research establishments and
sectors. On the other hand, in the case of companies) are strongly, but flexibly con-
unrelated variety, variety is seen as a portfolio nected with each other, and who stick to the
protecting a region from external shocks. following set of “policy principles” (OECD
According to Martin and Sunley (2006: 421) 2001):
“there is a trade-off between specialization
and a short-lived burst of fast regional growth i) carefully coordinating supply of and
on the one hand, and diversity and continual demand for skilled individuals
regional adaptability on the other”.
ii) developing a framework for improv-
Another key note derived from evolution- ing organisational learning, which is
ary thinking is that of co-evolution, which not only focused on high-tech sec-
can be applied in theorising about local tors, but on all sectors that have the
and regional development policy. In a co- potential to develop high levels of
evolutionary perspective, it is not only firms innovative capacity
and industries, but also local and regional
innovation policy, and in a broader sense the iii) carefully identifying resources in the
institutional environment of firms and indus- region that could impede economic
tries, that affect the dynamism of regional development (lock-ins)
economies (Nelson 1994; Murmann 2003).
iv) positively responding to changes
Theoretical concepts seen from from outside, particularly where this
an evolutionary perspective involves unlearning
In addition to the relevance of some key v) developing mechanisms for coordi-
notes from the evolutionary approach, evolu- nating both across departmental and
tionary thinking has also influenced other, governance (regional,national,supra-
sometimes older theoretical concepts with a national) responsibilities
strong relevance for local and regional inno-
vation policy. In the following we will deal vi) developing strategies to foster appro-
with arguably the most relevant concepts priate forms of social capital and tacit
(for an extensive overview of these so-called knowledge that are positive to learn-
ing and innovation
vii) continuously evaluating relationships
between participation in individual
141
ROBERT HASSINK AND CLAUDIA KLAERDING
learning, innovation and labour of RIS results from the coupling of three
market changes subsystems (Cooke et al. 1997) leading to
viii) fostering redundancy and variety of synergy effects of enhanced regional innova-
industries and networks tion capacities (Edquist 2001).The first sub-
ix) ensuring the participation of large system of finance refers to the availability of
groups of society in devising and regional budgets and capacities to control
implementing strategies. and manage regional infrastructures.The cul-
tural setting of regions constitutes the second
These characteristics of a learning region, subsystem and defines the milieu within
however, only describe the method of work- which the knowledge networks are embed-
ing and the attitude of regional economic ded. Interactive learning is identified as the
policy-makers.The concrete contents of the third subsystem and represents the core ele-
innovation policy need to vary according to ment of RIS as new knowledge is created
the economic profile and demand in indi- and exploited. By defining more or less
vidual regions (Tödtling and Trippl 2005). favourable conditions of these subsystems the
RIS approach becomes particularly relevant
Furthermore, partly based on the learning for regional innovation policies. Several EU
region concept, the EU has started a new programmes already adapt to the idea of RIS
generation of regional policies (Landabaso et al. (Landabaso et al. 2001).
2001), which aim at improving the institu-
tional capacity for innovation of less-favoured Cooke et al. (1998) argue that regional
regions.These, in turn, should lead to higher policy interventions appear to be most effec-
absorption capacity for innovation funds tive when regions display characteristics such
from national and European governments. as high financial autonomy and control of
infrastructures, high political competences and
Recently, however, critical voices on the dense knowledge networks which have been
learning region have become louder (Hassink observed for the case of Baden-Württemberg.
2007; Cooke 2005). Particularly, its fuzziness, At the same time, though, there is no best-
its normative character, its strong overlapping practice or one-size-fits-all model of RIS.
with other similar concepts and its squeezed Instead tailor-made policy measures are
position between national innovation sys- required according to specific regional arrange-
tems and global production networks have ments (Tödtling and Trippl 2005; Boschma
been criticised.Evolutionary thinking around 2008). For instance, ‘globalised’ and ‘dirigiste’
path dependence and lock-ins has been an RIS such as Singapore seem less integrated
important impetus for the emergence of the into regional networks. In contrast, business
learning region, but it has not contributed relations at the national and global scale as well
much to refining and improving this criti- as multinational corporations play key roles for
cised concept. promoting innovation (Cooke 2004).
Regional innovation systems The RIS approach relates to the evolu-
tionary thinking in two ways (see also Uyarra
The basis of regional innovation systems 2009; Iammarino 2005): first of all, it is a
(RIS) is regional networks and interdepend- dynamic approach. By drawing on different
encies between firms and organisations such case studies Cooke (2004) illustrates that RIS
as research institutes, financial service provid- change over time: regions such as Catalonia
ers, technology transfer agencies or regional can be classified in different RIS typologies
governments as well as institutions in terms during the years of 1995 to 2005. Second, we
of norms, rules, routines and conventions argue that it clearly refers to the identified
(Cooke et al. 1998).The systemic dimension key notes of path dependence, co-evolution
and lock-ins.
142
EVOLUTIONARY APPROACHES TO LOCAL AND REGIONAL DEVELOPMENT POLICY
The notion of path dependence can be potentially flexible and capable of adjustments.
identified in the definitions of the central However, institutions and organisations are
elements of RIS, namely region and innova- seen as rather reluctant to make changes and
tion. Both are considered to evolve over time, transformations can turn out to be a slow and
and thus follow specific trajectories. Accord- long-term process (Boschma 2008).
ing to Cooke et al. (1997, 1998) regions are
continuously formed by unique political, This represents a crucial turning point for
cultural and economic processes leading to regional development as lock-in situations
inner cohesiveness, homogeneity and shared are likely to appear. In this case, institutional
regional identity. They display institutions and organisational set-ups of regions do not
and organisations which are understood as match the demands of new markets or tech-
results of search and selection mechanisms nologies any longer (Boschma and Lambooy
for specific economic problems (Cooke et al. 1999a). Both, the co-evolution of institutions
1998; Boschma 2008). However, different and organisations and their relative stabilities
empirical definitions regarding spatial bound- become problematic for regional growth
aries of regions and RIS, respectively, make it because they reinforce an economic or tech-
difficult to provide clear policy advice nological path which is already outdated.The
(Doloreux and Parto 2005). Also, some RIS approach, therefore, is well suited to
authors question the assumed independence analyse regional lock-ins because they result
of regional systems from national influences from strong systemic relations between the
which seem to be predominant (Bathelt and institutional, organisational and policy levels
Depner 2003). (Cooke et al. 1998). Because of these rela-
tions policy measures to combat lock-ins
Also, innovations are understood as inher- have simultaneously to consider changes
ently path dependent because they are within the economic and institutional envi-
conceptualised as social and evolutionary ronment.Tödtling and Trippl (2005) suggest,
processes which are characterised by constant for instance, the creation of knowledge net-
learning and accumulation of knowledge works including new industries and tech-
(Cooke et al. 1998). Innovations are generated nologies as well as renewing the educational
through feedback loops and thereby refer to and scientific infrastructures of the region.
knowledge which has been gathered in the Boschma (2008) argues to diversify and
past. Hence, innovative outcomes and tech- broaden the regional economic base to allow
nological standards within a region crucially for multiple development paths which are
depend on previous knowledge trajectories. not selective towards particular regions or
sectors.To achieve highly flexible institutions
Besides the idea of path dependence the and organisations RIS should, similar to the
RIS approach emphasises co-evolutionary learning region approach, also promote
processes.Cooke et al. (1998) argue for mutual rather loose systemic relations and a culture
interdependencies between institutions, that supports openness and willingness to
organisations and firms. On the one hand, change (Cooke et al. 1998).
organisations and firms are claimed to be
embedded in institutional settings which Clusters
regulate economic interactions. On the other
hand, organisations and firms impact upon According to Porter (2000: 16) clusters can
institutions in two ways: they are able to be defined as “a geographically proximate
both, reinforce institutions by reproducing group of interconnected companies and asso-
established behaviour and to introduce new ciated institutions in a particular field, linked
sets of practices which challenge the existing by commonalities and complementarities”.
institutional context.Due to multiple systemic
intra- and inter-regional linkages RIS are 143
ROBERT HASSINK AND CLAUDIA KLAERDING
In recent years they have become the target cycle. By doing this the cluster is put in an
for policy-makers and a key concept in sup- evolutionary perspective. The life cycle of
porting innovativeness and competitiveness clusters goes from emerging to mature and
initiated at several spatial levels (suprana- declining stages, albeit not in a deterministic
tional, national, regional) (see, for instance, way (Figure 12.1; see also Lorenzen 2005;
Porter 2000; Asheim et al. 2006a; Borrás and Enright 2003). Menzel and Fornahl (2007: 3)
Tsagdis 2008; OECD 2007). Clusters, there- highlight the difference between industrial
fore, like learning regions and RIS, seem to and cluster life cycle and its consequences
be an empirical and theoretical basis for for local peculiarities and hence fine-tuned
newly oriented regional development poli- policies:
cies based on innovation.
Comparisons of clustered and non-
Martin and Sunley (2003), however, are clustered companies during the indus-
very critical about the ambiguities and iden- try life cycle highlight additional
tification problems surrounding the cluster differences: clustered companies out-
concept. In fact, the concept bears many perform non-clustered companies at
characteristics of what Markusen (1999) has the beginning of the life cycle and
coined a fuzzy concept, which is character- have a worse performance at its end.…
ised by both lacking conceptual clarity,rigour This shows that the cluster life cycle is
in the presentation of evidence and clear more than just a local representation of
methodology and difficulties to operational- the industry life cycle and is prone to
ise. An important criticism of clusters con- local peculiarities.
cerns the fact that the literature strongly
focuses on how clusters function, whereas In a next step Menzel and Fornahl (2007:
their evolutionary development is disre- 35–36) describe the different stages and the
garded, i.e. how clusters actually become particular policy consequences of these stages
clusters, how and why they decline, and how in development:
they shift into new fields (see Brenner 2004;
Lorenzen 2005; Staber 2009). Existing stud- During the emergent phase, the com-
ies on the emergence of clusters (e.g. Klepper panies are too heterogeneous to make
2007; Fornahl et al. 2009) tend to suggest use of synergies, while they are too
that the processes responsible for the func- close in the declining stage to endog-
tioning of a cluster cannot explain its emer- enously maintain their diversity.…
gence. In addition to this, examples of During the emergence of the cluster,
declining clusters (Hassink 2009; Hassink the goal must be to focus the often
and Shin 2005) illustrate that the economic thematically scattered companies on
advantages that stem from cluster dynamics particular points. These focal points
are not permanent. In fact, the decline of generate first synergies within the
clusters seems to be caused by factors that cluster and enable it to enter the
were advantages in the past (Martin and growth stage. After the growing stage,
Sunley 2006). the intention must be to steadily main-
tain a certain heterogeneity of the
A reaction to this criticism is the recently cluster to avoid a decline and to enable
emerging literature on cluster life cycles, new growth paths. Measures to enforce
with clear links to key evolutionary notes these strategies are, for example, the
such as path dependence, lock-ins and path selective promotion of start-ups that
creation (Menzel and Fornahl 2007; Press either lead to a widening of the the-
2006). It considers the stage of the cluster in matic boundaries of the cluster or to
its life cycle and recommends adapting poli-
cies to the position of the cluster in its life
144
EVOLUTIONARY APPROACHES TO LOCAL AND REGIONAL DEVELOPMENT POLICY
Emergence Growth Sustainment Decline
Size and heterogeneity Adaptation
Renewal
Transformation Maturity
Number of employees
Heterogeneity of accessable knowledge
Figure 12.1 Interaction between size and heterogeneity of clusters over the life cycle.
Source: Adapted from Menzel and Fornahl (2007)
its focussing, depending on the stage of of regional innovation systems through time,
the cluster. and on clusters, by extending this concept
with the policy-relevant life cycle approach.
Clusters can display long-term growth if they Critical issues, however, can be seen in its
retain their knowledge diversity (Saxenian limited empirical testing and the relegation
1994) and benefit from related variety to of the political economy and agency of insti-
other industries. There are also examples of tutions within and beyond the firm in the
clusters renewing themselves and entering evolutionary approach (MacKinnon et al.
new growth phases (Trippl and Tödtling 2009). Furthermore, given the embryonic
2008). Clusters are therefore able to enter stage of evolutionary thinking in local and
new life cycles in other industries and leave a regional studies, there is still much room to
maturing industry if they manage to go “further incorporate aspects related to policy
through processes of renewal and transfor- formation and evolution, as opposed to the
mation (Figure 12.1). present tendency to ‘black box’ policy proc-
esses” and “to develop a more sophisticated
Conclusions and nuanced understanding of the dynamics
and limits of policy making and policy actors,
This chapter has shown that the recent evo- and the increased complexity of policy
lutionary perspective contributes to local and making in a situation of multi-level, multi-
regional innovation policy in two ways. First, actor governance” (Uyarra 2009).
it introduces new notes that are highly rele-
vant to local and regional economic devel- One of the key influences of the evolu-
opment policies, such as path dependence, tionary perspective on local and regional
lock-ins, path creation, related variety and development policies is that they cannot be
co-evolution. Second, it has had a positive based on the principle of one-size-fits-all or
and refining influence on existing concepts best practice (Tödtling and Trippl 2005;
of local and regional economic policy, par- Visser and Atzema 2008). These policies,
ticularly on regional innovation systems, by instead, should reflect the different conditions
considering the evolutionary development and problems of the respective regional econ-
omies and innovation systems. A too strong
focus on the existing regional industrial base,
145
ROBERT HASSINK AND CLAUDIA KLAERDING
however,might lead to negative path depend- Boschma, R.A. and Lambooy, J.G. (1999a)
ence and lock-ins.Therefore,“the paradox of “Evolutionary Economics and Economic
regional policy holds that it can be very Geography”, Journal of Evolutionary Economics
effective and successful in conserving eco- 9, 411–429.
nomic activity by means of evolutionary
policies, yet it has difficulty triggering, or —— ( 1999b) “The Prospects of an Adjustment
even opposes new economic activity neces- Policy Based on Collective Learning in Old
sary for long-term development” (Boschma Industrial Regions”, GeoJournal 49, 391–399.
and Frenken 2007: 16). Evolutionary local
and regional development policies should Boschma, R. and Martin, R. (2007) “Editorial:
focus both on related variety in order “to Constructing An Evolutionary Economic
broaden and diversify the regional economic Geography”, Journal of Economic Geography
base” and, at the same time, on “building on 7, 537–548.
region-specific resources and extra-regional
connections” (Boschma 2008: 328). —— (eds) (2009) Handbook of Evolutionary
Economic Geography, Cheltenham: Edward
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13
Innovation, learning and knowledge creation
in co-localised and distant contexts
Harald Bathelt
Introduction suggesting that innovation and learning are
either focused on local and regional contexts,
Since the 1990s, reflexive processes of know- or driven by global connectivities through
ledge generation have become key factors relational ties (Allen et al. 1998; Amin 2004).
in globalisation, and what Giddens (1990) This chapter contributes to a relational per-
calls the radicalisation of modernity. While spective of economic action (Bathelt 2006)
knowledge has developed into a core resource by arguing that an analytical focus on any
shaping the so-called knowledge-based econ- distinct geographical entity, or a binary dis-
omy (Lundvall and Johnson 1994), learning is cussion of the advantages of local versus
the key process driving knowledge generation global or regional versus extra-regional link-
and innovation (Lundvall 1988; Gertler 1995). ages, would result in an over-simplification
A substantial part of the literature has focused of the multi-faceted and multi-tiered proc-
on analysing interactive learning processes in esses of learning and knowledge creation.
localised contexts, even though radical inno- Much of this discussion on the role of the
vations in information and communication region in the global knowledge economy
technologies (ICTs) have generated new pos- also suffers from focusing on territorial units
sibilities of transferring knowledge around the while neglecting the individual and collective
globe. Despite the potential of ICTs to open agents at the heart of economic decision-
up new opportunities for economic interac- making processes.
tion, as emphasised by a growing body of lit-
erature (e.g.Leamer and Storper 2001;Moriset In this context, this research questions the
and Malecki 2008), knowledge regarding the assumed priority of local over non-local
effects of these changes on the geographies of interaction that is still, at least implicitly, char-
learning, production and innovation is still acteristic of some of the cluster literature. As
limited. I use this as a starting point for my Oinas (1999) recognised, there is relatively
analysis of the effects of new communication little empirical evidence to support broad
technologies and organisational forms on claims on the predominance of proximate
processes of learning and knowledge creation. relations and localised learning in economic
interaction. Others have argued that the
As highlighted by Pike (2007), there are at “local” cannot be seen in isolation from other
least two opposing strands in the literature spatial levels in that local knowledge and
149
H A R A L D B AT H E LT
competencies are continuously and system- the potentialities of virtual interaction and
atically enriched and challenged by global their spatial consequences,as they are designed
linkages (Amin 2004). Such work suggests to overcome the role existing institutions
that the “local” and the “global” are insepara- have in stabilising prior communication
bly interwoven (Amin and Thrift 1992).The patterns.
argument put forward in this chapter sug-
gests that permanent co-location and face- Structurally, this chapter next highlights
to-face (F2F) interaction may be efficient in important findings from the literature about
some economic contexts but not in others. the role of F2F interaction in section two.
Business leaders located in one region, for Section three emphasises the advantages of
example, simply may not like one another or permanent co-location and regular F2F con-
have opposing goals, thus hampering oppor- tacts in clusters creating what I refer to as
tunities for regional interaction. Conversely, “local buzz”. Section four argues that perma-
interaction and learning in global production nent co-location should be viewed as an
contexts have become quite widespread. exception rather than a rule in complex pro-
Therefore, different settings can be structured duction chains which have a global reach.
in a way so as to enable efficient processes of Section five shows that temporary F2F inter-
economic interaction and knowledge gen- action and “global buzz” during international
eration, even over a large distance. The goal trade fairs provide opportunities to overcome
of this chapter, thus, is to move beyond a possible problems in communication and
simple dichotomy of local versus global knowledge exchange between agents located
spheres and, instead, inform a broader discus- in different regional, cultural, or national
sion concerning the potentialities for learn- contexts. Section six argues that computer-
ing and knowledge generation in settings not mediated interaction across locations can
characterised by permanent co-location. open new potentialities in innovation, not
likely available to permanent F2F encounters
Rather than emphasising the advantages within groups and corporations. Finally, sec-
of proximity per se, I argue that it is impor- tion seven draws conclusions arguing that
tant to analyse the preconditions, characteris- the combination of different forms of F2F-
tics and outcomes incurred through F2F and based and virtual interaction generates new
other forms of interaction in different spatial opportunities for integrating production and
settings.Temporary proximity through regu- innovation processes at the global scale.
lar business travel and intensive meetings
during international trade fairs may, for Role of proximity and
instance, suffice to replace the need for per- F2F interaction
manent co-location. Furthermore, new com-
munication media combined with specific While ICTs have provided new and unpre-
settings for interaction might mitigate, and cedented opportunities for knowledge trans-
even overcome, the need for permanent co- fers over distance, a large body of literature
location. In order to more fully develop this continues to stress the benefits stemming from
argument, I integrate economic geography geographic proximity between economic
literature and studies in the field of social agents. Studies in economic geography have
psychology (Bathelt and Turi 2008). Such made a concerted effort to advance our
studies shed light on how F2F interaction understanding of the importance of “being
operates, and how computer-mediated com- there” (e.g. Gertler 1995), with respect to
munication (CMC) can make up for some of stimulating “local buzz” and transferring and
the problems arising during remote collabo- implementing new technologies (Bathelt et al.
ration. Experiments conducted by social psy- 2004). Social psychologists have similarly
chologists are well suited to enquire about
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INNOVAT I O N , LEA R N IN G AN D KN OWLE D GE C R EATION
examined remote and proximate collabora- next, this is prominent in successful clusters
tion, especially since the advent of modern which are characterised by permanent co-
ICTs. In examining the efficiency of CMC presence and F2F interaction between agents.
on group processes and outcomes, this In contrast, distant agents have fewer oppor-
research has lent special attention to the tunities for the kinds of interaction that
social and cognitive factors arising during maintain and develop personal or emotional
F2F interaction. In explaining how integra- trust (Ettlinger 2003).
tional and informational aspects of F2F inter-
action afford the transfer of complex messages Furthermore, F2F interaction creates
and the stimulation of trust under conditions opportunities for controlling the perform-
of uncertainty, studies in social psychology ance of other agents (Crang 1994), and can
provide a deeper understanding of the proc- become a mechanism to exercise power over
esses underlying “being there”. others (Allen 1997). The absence of a visual
channel reduces possibilities for an accurate
In their foundational analysis on the social expression of the socio-emotional context
psychology of telecommunications, Short and decreases the information available about
et al. (1976) have identified a range of non- the self-images, attitudes, moods and reac-
verbal cues such as facial expression, direc- tions of others. The benefits and shortcom-
tion of gaze, posture and physical distance ings of mediums other than F2F interaction,
arising during F2F interaction. They distin- thus, hinge upon their ability to allow for the
guish two types of functions played by these actualisation and transfer of non-verbal cues.
non-verbal cues. First, the informational As argued below, different configurations of
function is concerned with the passage of learning and knowledge creation exist that
information from one individual to another involve a different mixture of co-location,
through illustrative and emblemic gestures, F2F meetings and virtual communication.
and other non-verbal cues. Second, the inte-
grative function refers to “all the behaviour Permanent co-presence in
that keeps the system in operation, regulates clusters and local buzz
the interaction process, cross references par-
ticular messages to comprehensibility in a Much of the research in economic geography
particular context, and relates the particular has been led by the assumption that spatial
context to the larger contexts of which the proximity is of key importance to understand
interaction is but a special situation” economic interaction because it “is still a
(Birdwhistell 1970: 26). fundamental way to bring people and firms
together, to share knowledge and to solve
While these aspects of F2F encounters problems” (Storper and Walker 1989: 80). As
enable the transfer of complex messages, col- pointed out by Hudson (2007), the new
lectively they serve to reduce uncertainties regionalism literature that has developed
between communicators and,in turn,engender since the 1990s emphasises the role of with-
trust.The latter point is particularly important in-region growth, institutional and learning
in economic contexts of learning and knowl- dynamics. There is significant empirical evi-
edge exchange (Leamer and Storper 2001). dence which supports this view. In the con-
Studies have shown that cooperative work text of urban or regional agglomerations of
environments and successful business transac- industries, or clusters (Porter 1990; Gordon
tions require the development of trust (Nelson and McCann 2000; Malmberg and Maskell
and Cooprider 1996; Dasgupta 2000). In 2002), recent research has linked the impor-
such situations, geographical proximity acts tance of proximate relations to the thick web
as a factor of cohesion by supporting long- of information and knowledge connecting
lasting cooperative behaviour thanks to
the repetition of commitment. As discussed 151
H A R A L D B AT H E LT
local agents and circulating between them. acquire by other means is transferred between
The resulting knowledge flows establish a firms (Malmberg and Power 2005).
rich information and communication ecol-
ogy referred to as “noise” (Grabher 2002) or Third, the diversity of the relationships
“buzz” (Storper and Venables 2004). This and contacts within a cluster strengthens and
local buzz consists of specific information enriches tight networks of information flows,
flows, knowledge transfers and continuous common problem solutions and the devel-
updates, as well as opportunities for learning opment of trust. Within these networks,
in organised and spontaneous meetings agents are linked in multiple ways with each
(Bathelt et al. 2004). The importance and other as business partners, colleagues, peers,
quality of a cluster’s buzz is related to a friends or community members. As a result,
number of features which are partly overlap- resources can be transferred from one type of
ping and make this setting especially valuable relationship to another (Uzzi 1997).Multiplex
for processes of learning and knowledge ties help firms to quickly access new infor-
creation. mation and speed up its circulation within
the cluster.
First, the co-presence of many specialised
firms of a particular value chain and regular Fourth, through the shared history of rela-
F2F contacts between specialists from these tionships firms learn how to interpret local
firms generate a specific milieu for the buzz and make good use of it. As a result,
exchange of experiences, information and communities of practice become more
knowledge within a cluster. In this milieu, rooted over time (Wenger 1998). This helps
F2F encounters and the associated non-verbal to transfer knowledge in a precise manner,
cues generate informational and integrational interpret new information in the context of
advantages in communication. This enables a cluster’s technological competence and
in-depth knowledge exchange as specific extract those knowledge parts that might be
information about technologies, markets and valuable in future applications. All of this is
strategies is circulated in a variety of ways in possible because co-presence and ongoing
planned and unplanned meetings. This can F2F encounters in a cluster enhance the like-
lead to a strong local embeddedness of firms, lihood that people develop compatible tech-
supporting fine-grained information flows nology outlooks and interpretative schemes.
and interactive learning (Granovetter 1985).
Interaction and learning are, of course, also
Second, the agents in a cluster share simi- related to ongoing transaction relations
lar technical traditions and views which have between regional firms, even if their extent is
developed over time.They are based on sim- limited. They are, furthermore, enhanced
ilar day-to-day routines and problem-solving, through cross-corporate involvement in com-
and a joint history of regular F2F communi- munity activities, industry associations, clubs
cation. Through this, new information and and the like. The advantages of permanent
technologies are easily understood. When co-presence and frequent F2F interaction are
people of a similar technological background supported by the fact that firms draw from a
and realm of experience in a region converse joint regional labour market characterised by
with one another, they almost automatically job mobility and overlapping competencies
know what others are talking about. Highly (Malmberg and Maskell 1997; Malmberg and
skilled experienced specialists, who have Power 2005). Through these processes, local
lived in a region for a longer time period, buzz is circulated and reinforced in powerful
know one another and may have become ways. Permanent co-location can translate
acquainted with several firms as a result of integrational and informational advantages of
switching jobs in the area.As positions change F2F interaction to become part of the wider
hands, knowledge that would be difficult to institutional repertoire available to all local
agents. In many ways, this serves to establish
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INNOVAT I O N , LEA R N IN G AN D KN OWLE D GE C R EATION
and deepen relational proximity and trust organisational proximity by merging with or
(Amin and Cohendet 2004; Bathelt 2006). It acquiring complementary firms in other
helps to establish reliable conditions for parts of the world to create reliable condi-
interactive learning and durable inter-firm tions for future interaction and wider market
relationships. access (Boschma 2005; Torre and Rallet
2005).This requires that international merg-
From research on path-dependent devel- ers and acquisitions share a certain degree of
opments we know, however, that problems cognitive proximity between the firms to
can develop if local communication patterns enable the respective agents to interact with
become too rigid and inward-looking, pre- one another, and integrate their different
venting trans-local knowledge flows and nec- cultures into a new overarching structure
essary adaptations to market and technology (Nooteboom 2000). At the same time, their
changes. From a spatial perspective, negative respective capabilities must be sufficiently
lock-in can result in a situation where different to allow them to benefit from inter-
localised industrial systems collectively run active learning. While international mergers
into problems due to rigid technological and acquisitions can be viewed as processes
and organisational structures (Grabher 1993; of bridging multiple distances and establish-
Asheim et al. 2006). Too much local interac- ing a framework for closer inter-firm link-
tion may lead agents to rely too heavily ages at an international scale, the same
on existing technologies and well-established processes also create stress on existing net-
problem solutions (Granovetter 1973). work relations at the regional level.The argu-
Through this, they may lose their openness ment put forward here is that a simple binary
for new solutions. Clusters might, in turn, of local versus global relationships is simply
become insular systems that are vulnerable to not enough. Relational ties stretch across
external shifts.As argued next,this may require regional and national territories while, at the
that important inputs be acquired through same time, being embedded into these
systematic outside-cluster interaction. entities (Bathelt 2006; Hudson 2007). As
emphasised by Allen and colleagues (1998: 5),
Organisational co-presence regions are “series of open, discontinuous
in global networks spaces constituted by the social relationships
which stretch across them in a variety
In a cluster, spatial proximity and shared of ways”.
institutional, social and cultural characteris-
tics can create conditions for firms to engage At a global scale, this argument of different
in economic transactions and develop long- types of proximities, which can be substi-
term producer–user relations (Rallet and tuted for one another, may distract from the
Torre 1999).Yet, focusing on internal cluster limitations to interaction that exist due to
interaction is not sufficient to generate long- particular spatial structures. In the context of
term growth and competitiveness. Of course, global production configurations or periph-
much research has shown that the national eral locations, for instance, firms may not
level is still key in providing the institutional easily find adequate partners for close-by
conditions for economic and social well-being transactions. They have no choice but to
(Gertler 1995; Pike and Tomaney 2004). To establish linkages over space providing access
overcome limitations, firms may strive for to distant markets and technologies developed
strengthening interregional and international elsewhere. F2F interactions in local context
linkages, which is, however, not a routine are often not an option for these firms. In
process with guaranteed success. One way global value chains, interaction does not
of trying to accomplish this is to establish build upon permanent F2F contact (Dicken
et al. 2001; Gereffi et al. 2005). It often
153
H A R A L D B AT H E LT
relies on a mixture of different types of more settings which work well without requiring
or less hierarchical network relations associ- co-location and F2F interaction on a daily
ated with existing personal ties, organisa- basis.These settings have become expressions
tional bonds, and/or repeated visits at of new geographies of circulation through
international trade fairs. which knowledge can be created and
exchanged at a distance (Thrift 2000; Amin
A single specific distance to be minimised and Cohendet 2004). An example for such
in order to establish regular F2F interaction interaction encompasses multinational firms
usually does not exist in complex production within which managers go back and forth on
networks. Firms serve global markets and a regular basis between different sites and
cooperate with partners located in different countries.Through this, they generate a con-
parts of the world. From the perspective of text similar to co-presence, but between dis-
market access, it might be imperative for a firm tant places. Another example is given by
to be reasonably close to its major markets to learning processes and knowledge exchange
be able to customise products and learn from during international trade fairs, as discussed
interaction with customers. From the view in the next section.
of research and development (R&D), it might
be more important to have R&D facilities Temporary F2F interaction
close to production to benefit from constant and global buzz
feedback and learning-by-doing. Depending
on which aspect dominates, the locational A specific setting through which global
structure of firms can be quite different. knowledge flows are circulated and new
No matter how and where marketing, linkages explored exists at leading interna-
production or R&D are established, any tional trade fairs (Borghini et al. 2004;
setting is likely to be associated with prox- Maskell et al. 2006). These events open up
imities on one end and distances on the many possibilities for knowledge creation,
other.To have a single large plant within one network and market development at a global
cluster could under these circumstances basis. F2F meetings with other participants at
cause problems in producer–user interaction trade fairs enable firms to systematically
because of large distances to international acquire information and knowledge about
markets. competitors, suppliers, customers, and their
technological and strategic choices (Bathelt
In sum, geographical proximity and “being and Schuldt 2008a).Temporary F2F contacts
there” are important issues of corporate provide a sufficient basis to reassure ongoing
organisation (Gertler 1995), but it has to be interaction, even involving complex com-
specified exactly which proximities are key: munication and learning.
proximity to specific markets, production, or
knowledge pools. In reality, spatial proximity Through different routes, global informa-
and permanent F2F interaction might be tion concerning trends and ideas in an indus-
possible with some relevant agents but not try, as well as all sorts of news and gossip, flow
with all. As a consequence, there is no pre- back and forth between the participants who
defined territorial or non-territorial level are temporarily clustered at trade fairs.Agents
which is best suited to support knowledge benefit from integrational and informational
creation and innovation (Pike 2007).There is cues transported through repeated, intensive,
clearly no simple “either/or” between local often short F2F encounters which lead to a
and global learning dynamics as both are specific communication and information
often intrinsically intertwined (Amin 2004). ecology referred to as “global buzz” (Bathelt
Many firms have learned how to organise and Schuldt 2008b). Similar to local buzz,
economic action without permanent co-
presence and have developed alternative
154
INNOVAT I O N , LEA R N IN G AN D KN OWLE D GE C R EATION
global buzz is a multidimensional concept Mixing different types of business-related
which enables unique processes of knowledge and other information also helps to check
dissemination and creation through interac- out other agents and establish initial commu-
tive learning and learning-by-observation. Its nication which can be continued later on.
constitutive components are related to the Through regular attendance at international
dedicated co-presence of global supply and trade fairs, firms are able to find suitable part-
demand, intensive temporary F2F interac- ners to complement their needs, learn about
tion, a variety of possibilities for observation, new developments, and undertake the first
intersecting interpretative communities, and steps towards the establishment of durable
multiplex meetings and relationships. Central inter-firm networks with distant partners. In
to these processes are verbal and non-verbal the next section, the arguments about know-
cues, visual stimuli, feelings and emotions, ledge creation and learning are extended to
which are omnipresent during these events contexts without F2F interaction.
(Entwistle and Rocamora 2006).
CMC vs. F2F collaboration
International trade fairs bring together in economic interaction
leading, as well as less well-known, agents and learning
from an entire industry or technology for the
primary purpose of exchanging knowledge While the above arguments suggest that per-
and learning about the present and future manent, regular or temporary F2F contacts
development of their industry, centred around are of central importance to processes of
displays of products, prototypes and innova- economic interaction, learning and know-
tions.This enables agents to get an overview ledge creation, such encounters are still lim-
of the developments and trends in the world ited in global production contexts. Instead,
market, and provides myriad opportunities to many firms rely to a great extent on virtual
make contact, ask questions and engage in communication through ICTs to organise
F2F communication with other agents from production, research and market interaction.
the same value chain (Rosson and Seringhaus Traditional studies in social psychology have
1995; Sharland and Balogh 1996; Prüser emphasised the structural differences that
2003). Exhibitors and visitors benefit enor- exist between CMC and F2F interaction,
mously from the large variety of different pointing at different learning and networking
types of informal and formal meetings held potentials.Social presence theory,for instance,
with a large variety of agents (Bathelt and suggests that the absence of non-verbal, vocal
Schuldt 2008a). and physical cues denies users important
information about the characteristics, emo-
During these trade fairs, focused commu- tions and attitudes of other agents; thus
nities with similar technical traditions and resulting in communication that is less socia-
educational backgrounds meet, which have ble, understandable and effective (Walther
developed over time based on similar day- et al. 2005).
to-day experiences. Participation within these
communities helps reduce uncertainties and As argued below, however, potentialities of
the degree of complexity in fast-changing CMC might be much greater than suggested
product and technology markets. Within in social presence theory. Interaction patterns
their contact networks, agents are linked in based on new ICTs have challenged estab-
different ways and exchange facts, impres- lished interpretations which emphasise the
sions, gossip, as well as small talk. This disadvantages of CMC compared to F2F set-
helps transmit experiences with existing tings.A growing body of research has, in fact,
products and interpretations of new devel- contested the presumed differentiation of
opments in understandable ways (Borghini
et al. 2006; Entwistle and Rocamora 2006). 155
H A R A L D B AT H E LT
verbal and non-verbal cue functionalities, at to high-status members, and are less inhib-
least with respect to their outcome. Social ited than F2F collaborators (Dubrovsky et al.
information-processing theory, for instance, 1991; Hollingshead and McGrath 1995).
rejects the position that CMC is inherently Rice (1984) has found that when faced with
impersonal and that relational information is a dilemma, F2F groups begin by analysing
inaccessible to CMC users (Walther et al. the problem, whereas CMC collaborators
2005). Instead, it assumes that individuals tend to start a discussion by proposing a solu-
deploy whatever communication cues they tion. Studies have suggested that anonymity
have at their disposal when motivated to decreases conformance pressure in CMC
develop relationships. This can provide the settings and allows group members to be less
basis for the establishment of social relations, inhibited in their expression of ideas (Baltes
as is also the position of equilibrium theory et al. 2002). Furthermore, ideas expressed
(Olson and Olson 2003). under anonymous conditions are more likely
to be evaluated based on their merit, rather
These conceptions raise questions regard- than the status of the person presenting them.
ing the general superiority of local F2F-based This points at the potential of CMC settings
encounters over CMC in distant interaction to break with existing problem solutions and
and learning. In the context of corporate generate opportunities for innovation, analo-
innovation projects and group collaboration, gous to the weak-tie argument of Granovetter
contextual differences between F2F interac- (1973).
tion and CMC have been shown to affect the
process and outcome of communication in Although there are also clear limitations to
sometimes unexpected ways. For example, interaction, these studies indicate that the
Wainfan and Davis (2004) show that the systematic use of CMC enables complex
group structure in CMC is often broader, yet interaction, and can stimulate learning and
more agile than in F2F teams. Accordingly, network formation even without frequent
there is greater breadth in collaboration F2F contact. When including opportunities
themes due to a wider involvement of experts. of using video-based CMC formats and the
Although it might be harder to form social combination of these virtual encounters with
networks, it is also more difficult to distract or occasional planned F2F meetings, the range
deflect the participants’ attention by involving of possibly efficient spatial configurations
them in side conversations. In reducing non- involving local and non-local F2F and com-
verbal cues, other factors such as common puter-mediated exchanges drastically widens.
ground, power and status become much less
important in CMC. In the localised context In the context of innovation projects in
of a firm, contextual cues such as seating posi- multinational firms, Song et al. (2007) have
tion, office location, and even clothing have documented that knowledge dissemination
been found to influence communication pat- between agents is greatest when both settings
terns during employee meetings (Dubrovsky are combined. There appear to be parts of
et al. 1991). As shown by Sproull and Kiesler innovation processes where F2F meetings are
(1991), individuals using CMC feel less key to the development of new ideas and
constrained by conventional norms and rules concepts, while other parts benefit from
of behaviour. The lack of “social baggage” work at dispersed workplaces with regular
attached to electronic messaging can help CMC adjustments. Permanent co-location
overcome some detrimental hierarchical and may foster knowledge dissemination within
social structures impeding decision making R&D but impede knowledge dissemination
within a group setting. between R&D and production. In global
production contexts, co-localisation of R&D
Studies have shown that CMC partici- staff conversely may lead to the separation of
pants make more explicit proposals, defer less R&D and production.At the corporate level,
156
INNOVAT I O N , LEA R N IN G AN D KN OWLE D GE C R EATION
efficient learning requires that uncertainties be minimised in economic production and
and ambiguities are reduced, and that both innovation. Proximities at one end of the
explicit and tacit knowledge in both weak production context will likely produce
and strong relationships, planned and distances at another.
unplanned meetings, and both nearby and far
away are transferred.This heterogeneity sug- Studies examining F2F interaction and
gests that optimal innovation conditions CMC demonstrate that the two mediums
require that co-location is complemented by possess unique properties. Each medium has
CMC technologies (Nonaka and Takeuchi its relative strengths and weaknesses, which
1995). Similar conclusions can be drawn play themselves out differently during differ-
regarding inter-firm interaction. ent tasks. On the one hand, when analysing
corporate work processes and project groups,
Conclusion CMC is weaker under time constraints and
tends to produce poorer decisions.That being
This chapter aims to demonstrate that said, it allows for knowledge dissemination
advancements in ICTs are drastically chang- between more people, and does so quicker.
ing the ways in which firms conduct business F2F interaction,on the other hand,is stronger
and link practices of regional and cross- in conveying tacit knowledge, which is criti-
regional learning (Leamer and Storper 2001; cal in periods of uncertainty and ambiguity.
Grabher et al. 2008). It puts forward a rela- However, the social baggage which accom-
tional argument suggesting that the region panies F2F interaction can be a burden to
and other geographical entities are not a successful innovation.
priori bounded spaces of economic action
(Amin 2004). Instead, as argued by Bathelt In response to inefficiencies of CMC and
(2006), learning and knowledge creation in the importance of geographic proximity,
such a perspective are systematically influ- corporate actors explore organisational struc-
enced by structures of social and institutional tures combining both aspects, thus enabling
relations (contextuality), the past legacies of knowledge generation over distance. For
such relationships (path dependence), as well Torre and Rallet (2005), a solution lies in the
as the principal open-endedness of potential temporary mobility of individuals.The need
decision making (contingency). In a spatial for F2F interaction in terms of learning and
perspective, relational action is not limited to, knowledge exchange does not necessitate
and indeed cuts across, specific territories. that individuals permanently co-locate.What
Relational linkages might be grounded in it requires is that individuals meet regularly
local or regional development paths; how- in certain time intervals. In some circum-
ever, they likely extend well beyond these stances, problems can be solved through the
boundaries through personal ties or organi- mobility of individuals, as in the case of busi-
sational networks which have been estab- ness travel. In other circumstances, indivi-
lished in the past or result from global duals collaborating in projects only need to
production contexts. As such, this chapter meet F2F during particular phases of the
suggests that there is no “either/or” dichot- innovation process, especially during times of
omy of local versus global learning dynamics high complexity and uncertainty. During
(Hudson 2007) but that relational bonds are these periods, F2F interaction as “organised
capable of benefiting from both: discrete ter- proximity” is critical. In other stages of the
ritorial advantages as well as trans-territorial innovation process, it may suffice or even be
relationships and networked competencies. more efficient to rely on CMC settings for
Therefore, there is no simple proximity to interaction. Organised proximity, of course, is
not a purely geographical concept: it is rela-
tional and urges greater interaction among
the members of a project, organisation or
157
H A R A L D B AT H E LT
value chain (Bathelt 2006). It refers to the in the globalising knowledge economy in
establishment of a collective culture that the future.
generates shared interpretations of new
information even if the agents are located in Acknowledgements
different places. Such commonality in think-
ing and solving problems is critical to learn- Earlier versions of this chapter were pre-
ing and knowledge generation. sented in 2008 at the Conference on“Industrial
Cluster and Regional Development” in
In scenarios where proximity is simply Kaifeng (China), the Symposium on “Know-
untenable, the value of virtual interaction ledge and Economy” in Heidelberg and the
using modern ICTs dramatically increases. Summer Institute in Economic Geography
In these cases, actors are quite willing to in Manchester. I would like to thank the par-
put up with and overcome the deficiencies ticipants of these meetings for valuable feed-
of virtual interaction. Trade-offs are inevita- back and comments. In particular, I would
ble and staying competitive requires pin- like to thank Phil Turi for collaborating with
pointing a firm’s own mixture of settings me in this research, and for co-developing
for interacting in production, distribution some of the arguments put forward regarding
and innovation (Bathelt and Turi 2008). the role of CMC (for a detailed analysis, see
Under all circumstances, one has to keep in Bathelt and Turi 2008). I am also indebted to
mind that one decisive disadvantage of CMC the editors for stimulating suggestions on
compared to F2F communication is related how to develop my arguments further.
to difficulties in establishing initial trust. Financial support from the Social Sciences
While this may require that complex innova- and Humanities Research Council of Canada
tion projects over distance have to involve is greatly appreciated.
agents already sharing trust from former
cooperation in a co-localised setting, it does References
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Argyris, C. and Schön, D. (1978) Organisational
Learning:ATheory of Action Perspective, Reading,
MA:Addison Wesley.
161
14
Culture, creativity, and urban development
Dominic Power and Allen J. Scott
The cultural economy industries that can be loosely identified as
suppliers of products with powerful aesthetic
The cultural economy has, in recent years, and semiotic content (Pratt 1997; Power
been the object of significant attention in 2002; Power and Scott 2004). These indus-
studies of urban development. The rising tries are based on an enormous and ever-
importance of cultural activities in this regard increasing range of outputs (e.g. music,
is scarcely surprising given the increasing computer games, film and television, new
convergence between systems of cultural media, fashion design, visual and perform-
expression on the one hand and the economic ance arts, and so on).
order on the other (Lash and Urry 1994).
Inspired by such intersections, cities and The industries that make up the contem-
regions around the world have looked to porary cultural economy are bound together
‘creativity’ and ‘culture-led development’, as an object of study by three important
and the ‘creative industries’ to help address common features. First, they are all con-
the development deficits attributed to dein- cerned in one way or another with the crea-
dustrialization and global outsourcing. More- tion of products whose value rests primarily
over, it is far from wishful thinking to base on their symbolic content or the ways in
regional growth agendas on the cultural which they stimulate the experiential reac-
economy. For a variety of reasons, from the tions of consumers. Second, they are gener-
rise of popular culture to increasing disposa- ally subject to the effects of (Ernst) Engels’
ble incomes, markets for cultural products Law,which suggests that as disposable income
have expanded rapidly in the last few dec- expands so consumption of non-essential or
ades. However, the cultural economy is not luxury products will rise at a disproportion-
just about economic development, since the ately higher rate. Hence, the richer the
marketplaces, products and channels at its region, the higher expenditure on cultural
centre are now the dominant forums within products will be as a fraction of individuals’
which many social, cultural and political budgets. Third, firms in cultural products
development processes find form and expres- industries are subject to competitive and
sion. As this has occurred, there has been a organizational pressures such that they fre-
marked growth and spread of a group of quently agglomerate together in industrial
districts or dense specialized clusters, while
162
CULT URE, C R E ATIV ITY, A N D U R BA N D EV E LOPMEN T
their outputs circulate with increasing ease the mass-production era, the dominant sec-
on global markets. tors evolved through a succession of techno-
logical and organizational changes focused
It must be stressed at once that there can above all on process routinization and the
be no hard and fast line separating industries search for internal economies of scale.These
that specialize in purely cultural products features are not especially conducive to the
from those whose outputs are purely utilitar- injection of high levels of aesthetic and sem-
ian. On the contrary, there is a more or less iotic content into final products. Indeed, in
unbroken continuum of sectors ranging the 1930s and 1940s many commentators
from, say, detective novels or recorded music expressed grave misgivings about the incur-
at the one extreme, through an intermediate sion of industrial methods into the sphere of
series of sectors whose outputs are varying the cultural economy and the concomitant
composites of the cultural and the utilitarian tendency for complex social and emotive
(such as shoes, sunglasses, or sports bicycles), content to be evacuated from forms of popu-
to, say, cement or petroleum products at the lar cultural production (e.g. Horkheimer
other extreme. At the same time, one of 1947; Adorno 1991). These misgivings were
the peculiarities of modern capitalism is that by no means out of place in a context where
the cultural economy continues to expand at much of commercial culture was focused on
a rapid pace not only as a function of the an extremely narrow approach to entertain-
growth of discretionary income, but also as ment and distraction. The specific problems
an expression of the incursion of sign-value raised by the Frankfurt School in regard to
into ever-widening spheres of productive popular commercial culture have in certain
activity at large as firms seek to intensify the respects lost some of their urgency as the
design content, styling, and quality of their economic and political bases of mass-
outputs in the endless search for competitive production have given way before the
advantage (Scott 2008). changes ushered in over the late 1970s and
early 1980s, when the new economy started
It is such incursions alongside the growth its ascent.This is not to say that the contem-
in cultural industries that makes the cultural porary cultural economy is not associated
economy such an important topic for local with a number of serious social and political
and regional development; something we predicaments. But it is also the case that as
specifically address in the final section of this commercial cultural production and con-
chapter. Our central contention is that the sumption has evolved in the major capitalist
industries and agents involved in the cultural societies, so our aesthetic and ideological
economy are central to a series of new judgements about their underlying meanings
opportunities and challenges to local and have tended to shift.
regional social well-being and economic
development. In contrast to mass machinofacture, sectors
in the contemporary cultural economy tend
Production, organization and to be composed of relatively disintegrated
work in the cultural economy production processes, with processes of disin-
tegration being greatly facilitated by various
Over much of the last century, the leading kinds of computerized and digitized tech-
edges of economic development and growth nologies. Equally, and nowhere more than in
were largely identifiable with sectors charac- segments of the cultural economy, produc-
terized by varying degrees of mass produc- tion is often quite labor-intensive, for despite
tion, as expressed in large-scale machine the widespread use of electronic technologies,
systems and a persistent drive to product cultural products industries also tend to make
standardization and cost cutting.Throughout heavy demands on both the brainpower and
163
DOMINIC POWER AND ALLEN J. SCOTT
handiwork of the labor force.These industries (Peterson and Berger 1996). Technological
are typically composed of swarms of small change is often central to these processes and
producers (with low entry and exit costs), the recent shifts brought about by new possi-
complemented by many smaller numbers of bilities for disintermediation and distribution
large establishments. Small-scale producers in in the music, television and film industries are
the cultural economy are frequently marked evidence of how quickly accepted industrial
by neo-artisanal forms of production, or, in a norms, structures and hierarchies can change.
more or less equivalent phrase, by flexible spe- Indeed, one can imagine that at least some
cialization, meaning that they concentrate on segments of the cultural economy – resting as
making particular categories of products it does on fluid and unpredictable trends and
(clothing, advertisements, cultural perform- hard-to-protect intellectual property – may
ances, etc.) but where the design specifications be entering into a new phase of development
of each batch of products change repeatedly. marked by yet more intense competition and
To be sure,large firms in the cultural economy reduced levels of oligopolistic power.
occasionally tend toward mass-production
(which would generally signify a diminution The actual work of production in the cul-
of symbolic function in final outputs), but are tural economy is typically carried out within
nowadays increasingly prone to organization shifting networks of specialized but comple-
along the lines of “systems houses” (Scott mentary firms. Such networks assume differ-
2002).The latter term is used in the world of ent forms, ranging from heterarchic webs of
high-technology industry to signify an estab- small establishments to more hierarchical
lishment whose products are relatively small in structures in which the activities of groups of
number over some fairly extended period of establishments are coordinated by a dominat-
time, and where each unit of output repre- ing central unit, with every possible variation
sents huge inputs of capital and/or labor. between these two extreme cases. Much of
Examples of systems houses are computer the cultural economy can be described as
games producers,the major Hollywood movie conforming to a contractual and transactional
studios, large magazine publishers (but not model of production (Caves 2000). This
printers), television network operators, and, to model also extends to employment relations,
a lesser degree, fashion houses. with part-time, temporary, precarious, non-
standard, and freelance work being prevalent
These large-scale producers are of particu- (Ross 2008). The instabilities associated with
lar importance in the cultural economy this state of affairs often lead to intensive
because they so frequently act as the hubs of social networking activities among skilled
wider production networks incorporating creative workers as a means of keeping abreast
many smaller firms. Equally, and above all in of current trends and opportunities and of
the entertainment industry, they play a criti- finding collaborators, customers and employ-
cal part in the financing and distribution of ers (Scott 1998; Neff et al. 2005). Within
much independent production. In addition, the firm, these same workers are often
large producers right across the cultural incorporated into project-oriented teams, a
economy are increasingly subject to incor- form of work organization that is rapidly
poration into the organizational structures becoming the preferred means of managing
and spheres of influence of giant multina- internal divisions of labor in the more inno-
tional conglomerates through which they tap vative segments of the modern cultural
into huge financial resources and marketing economy (Grabher 2001). By contrast, in
capacities. While these giant firms are abso- sectors such as clothing or furniture, where
lutely central to the cultural economy, it is low-wage manual operators usually account
also important to note that their power is for a high proportion of total employment,
constantly under threat and subject to change piece-work and sweatshop conditions are
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CULT URE, C R E ATIV ITY, A N D U R BA N D EV E LOPMEN T
more apt to be the prevailing modes of incor- establishments that make them up exhibit at
porating workers into the production process, least some degree of locational agglomeration.
though these sectors are also characterized by A growing body of literature has shown that
high-wage, high-skill segments in activities there is a persistent tendency of producers in
such as design and commercialization. the cultural economy to cluster together in
geographic space (Christopherson and
These features of the modern cultural Storper 1986; Pratt 1997; Coe 2000; Scott
economy differentiate it quite markedly from 2000; Hesmondhalgh 2002; Power and
the older model of mass-production. In con- Hallencreutz 2002; Rantisi 2002; Power and
trast to what was often seen as the dispiriting Scott 2004; Vinodrai 2006). This tendency
and endless uniformity of the outputs that follows at once from the economic efficien-
flowed from the mass-production system, the cies that can be obtained when many differ-
cultural economy is marked by extremely ent interrelated firms and workers lie in close
high levels of product variety in regard to proximity to one another so that their com-
both form and substance. As a corollary, the plex interactions are tightly circumscribed in
cultural economy is associated with a major space and time. Agglomeration also occurs
transformation of market structures, with for reasons other than economic efficiency
monopolistic competition à la Chamberlin in the narrow sense. It is also partly a result of
(1933) becoming increasingly the norm. the learning processes and innovative ener-
Chamberlinian competition, which resembles gies that are unleashed from time to time in
in some respects imperfect competition as industrial clusters as information, opinions,
formulated by Robinson (1933), is based on cultural sensibilities, and so on, are transmit-
the notion that distinctive market distortions ted through them, and these processes are
appear when producers have strongly devel- usually especially strong in cases where trans-
oped firm-specific characteristics. Under a actional intensity is high. Moreover, outputs
regime of monopolistic competition there that are rich in information, sign value, and
may be many individual firms all making a social meaning are particularly sensitive to
particular class of products, but each firm’s the influence of geographic context and
output also has unique attributes (design, creative milieu. Molotch (1996, 2003)
place-specific associations, brand, etc.) that has argued that agglomerations of design-
can at best be reproduced by other firms only intensive industries acquire place-specific
in the form of inferior imitations.The increas- competitive advantages by reason of local
ing importance of cultural and symbolic con- cultural symbologies that become congealed
tent in contemporary patterns of consumption in their products, and that imbue them with
means that monopolistic competition has authentic character. This intensifies the play
become an ever more feasible option for firms of Chamberlinian competition in the cul-
throughout the entire economy.The constant tural economy because monopolistic assets
rebranding and repackaging characteristic of now not only emerge from the productive
product markets today is helping to usher in strategies of individual firms, but also
an economic system where even small firms from their wider geographic milieu (Hauge
can sometimes vie with goliaths in the crea- et al. 2009).
tion of virtual product monopolies.
The association between place and product
Nodes and networks in the in the cultural industries is often so strong
cultural economy that it constitutes a significant element of firms’
successes on wider markets. Place-related
Cultural products industries almost always markers, indeed, may become brands in
operate most effectively when the individual themselves that agents can exploit to increase
their competitive positions, as exemplified by
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DOMINIC POWER AND ALLEN J. SCOTT
the cases of Jamaican reggae, Scandinavian Currid 2007). In a city like Las Vegas, the
design, Hawaiian shirts, or Persian carpets. urban environment, the production system,
Successful cultural products agglomerations, and the world of the consumer are all so
as well, are irresistible to talented individuals tightly interwoven as to form a virtually
who flock in from every distant corner in indivisible unity. The city of work and the
pursuit of professional fulfillment, in a proc- city of leisure increasingly interpenetrate one
ess that Menger (1993) has referred to as another.
“artistic gravitation.”This gravitational force
signifies that the labor pools of dynamic Global connections
agglomerations are constantly being replen-
ished by selective in-migration of workers In spite of the predisposition of firms in par-
who are already predisposed to high levels of ticular cultural products industries to locate
job performance in the local area. Local sup- in close mutual proximity to one another,
plies of relevant skills and worker sensibilities inputs and outputs flow with relative ease
are further augmented by the specialized across national borders and are a steadily
educational and training institutions that rising component of international trade.The
typically spring into being in productive international flow of cultural goods and serv-
agglomerations. ices is reinforced by the operations of tran-
snational media conglomerates whose main
These remarks indicate that a tight inter- competitive strategy appears increasingly to
weaving of place and production system is be focused on the creation of worldwide
one of the essential features of the new cul- blockbuster products, as exemplified dramat-
tural economy of capitalism.This interweav- ically by the market offerings of major firms
ing is obviously an important point of in the computer games and film industries.
leverage for agents that are primarily inter- At the same time, with ever greater global
ested in local and regional development interconnectedness many different cultural
(such as local authorities or tourist boards) styles and genres become accessible to far-
but it is also a lever commonly used by agents flung consumers so that highly specialized
interested in making a living from cultural niche markets are also proliferating alongside
products. In cultural products industries, as the blockbuster markets in which major cor-
never before, the wider urban, leisure and porations largely participate.With the further
social environment and the apparatus of pro- development of computerized distribution
duction merge together in potent synergistic technologies for cultural products, the pro-
combinations. Some of the most advanced cess of globalization will assuredly accelerate,
expressions of this propensity can be observed and this is especially true for cases where
in world cities like NewYork, Paris, London, digitization of final outputs is feasible.
or Tokyo. Certain districts in these cities are
typified by a more or less organic continuity Observe that globalization in the sense
between their place-specific settings (as indicated does not necessarily lead to the
expressed in streetscapes, shopping and locational dispersal of production itself. On
entertainment facilities, and architectural the contrary, globalization qua spatial fluidity
background), their social and cultural infra- of end products helps to accentuate agglom-
structures (museums, art galleries, theaters, eration because it leads to rising exports
and so on), and their industrial vocations (for combined with expansion of localized pro-
example, advertising, graphic design, audio- duction activities. Concomitant widening
visual services, publishing, or fashion cloth- and deepening of the social division of
ing). The social networks and scenes that labor at the point of production then helps to
define production also leave an indelible intensify clustering because it generates
stamp on the character of the city (Neff 2005;
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CULT URE, C R E ATIV ITY, A N D U R BA N D EV E LOPMEN T
increased positive externalities. Locational onto wider markets.This remark, by the way,
agglomeration and globalization, in short, are should not induce us to neglect the fact that
complementary processes under specifiable small independent firms continue to occupy
social and economic circumstances.That said, an important place in almost all cultural
the falling external transactions costs associ- products agglomerations. In the past, multi-
ated with globalization will sometimes nationals based in the United States and
undermine agglomeration from the other Europe have led the race to command global
end, as it were, by making it feasible for some markets for nearly all types of cultural prod-
kinds of production to move to alternative ucts, but producers from other countries are
locations. It is now increasingly possible for now entering the fray in ever-greater num-
activities that could not previously escape the bers, even in the media sectors that have
centripetal forces of agglomeration to decen- hitherto been considered as the privileged
tralize to alternative locations, such as sites preserve of North American and European
with relatively low labor costs. This may firms. In the same way, different cultural
result in a wide dispersal of certain types of products industrial agglomerations around the
production units, such as DVD processing world are increasingly caught up with one
plants and server farms for the gaming indus- another in global webs of co-productions
try, or in the formation of alternative clusters and creative partnerships (Lorenzen and
or satellite production locations, as illustrated Täube 2008; Lorenzen 2009). Indeed no
by the sound stages and associated facilities localized group of firms can nowadays be
that have come into existence in Toronto and completely self-sufficient in terms of state-
Sydney in order to serve US television and of-the-art knowledge creation, and world-
film production companies. wide inter-agglomeration networks and
circuits of interaction are an increasingly vital
The overall outcome of these competing element of any individual agglomeration’s
spatial tensions in the modern cultural econ- performance. Concomitantly, global produc-
omy is a widening global constellation of tive alliances and joint ventures are surging
production centers.The logic of agglomera- to the fore in the modern cultural economy,
tion and increasing-returns effects suggests drawing on the specific competitive advan-
that one premier global center will occasion- tages of diverse clusters, but without neces-
ally emerge in any given sector, but even in sarily compromising the underlying force of
the case of the international motion-picture agglomeration itself.
industry,which is overwhelmingly dominated
by Hollywood, it can be plausibly argued In these industries where volatile and
(above all in a world of monopolistic compe- unpredictable changes in fashion are a given
tition) that multiple production centers will and where product differentiation is the
continue to exist if not to flourish.The scenario dominant strategy pursued by firms, places
of thriving multiple production centers is all which can “act as switching centres for the
the more to be expected given that policy- transmission of ideas harvested from a wide
makers are investing more and more effort in range of sources” (Weller 2007: 43) become
local economic development projects based privileged points on the landscape of pro-
on the cultural economy, and where this duction and consumption. The depth and
effort also includes the fostering of associated intensity of global connections and flows
distribution and marketing systems. makes switching centers, meeting places, and
interactive spaces vitally important for all
Large multinational corporations play a sorts of strategic knowledge and networks.
decisive role across this entire functional and Key to these sites is their role as foci of a
spatial field of economic activity, both in highly globalized yet centralized culture and
coordinating local production networks and fashion media system (Breward and Gilbert
in ensuring that their products are projected
167
DOMINIC POWER AND ALLEN J. SCOTT
2006) that allows knowledge to be imported, environmentally friendly; and they frequently
created, and disseminated on a world-wide (though again not always) employ high-
scale. It is not only the resident workers and skill, high-wage, creative workers. Cultural
entrepreneurs of these nodes who are impor- products industries also generate positive
tant agents of local cultural development; externalities in so far as they contribute to
short-term visitors to trade fairs, passing the quality of life in the places where they
tourists, bloggers following fashion trends and congregate and enhance the image and pres-
gossip from far away are all examples of actors tige of the local area. Moreover, as noted
important to the emergence of the urban above, they tend to be highly localized and
milieu. Moreover, the nodes themselves may often place-bound. This fact has made them
be short-lived, periodic or episodic, as dem- increasingly attractive to policy-makers
onstrated by the important role played by intent on finding new solutions to problems
trade fairs as switching points within global of urban redevelopment and local economic
circuits of knowledge and value chains dem- performance.
onstrate (Power and Jansson 2008).
A sort of first-generation approach to the
Once all of this has been said, the advent of systematic deployment of cultural assets in
a new cultural economy and the flow of its the quest for local economic growth can be
outputs through circuits of international found in the aggressive place-marketing and
commerce have not always been attended by local boosterism pursued by many municipal
benign results.This situation has led to numer- authorities since the early 1980s.This activity
ous political collisions over issues of trade and is often based on a local patrimony of his-
culture. Notwithstanding such notes of dis- torical or artistic resources, but it also assumes
sonance, we seem to be moving steadily into the guise of energetic property redevelop-
a world that is becoming more cosmopolitan ment programs. In many cases cultural grand
and eclectic in its modes of cultural consump- projects have anchored initiatives to remake
tion. Certainly for consumers in more eco- and market places: for instance, the success of
nomically advanced locales, traditional local the Guggenheim Museum in Bilbao as part
staples are now but one element of an ever- of an initiative that has turned an old and
widening palette of cultural offerings com- stagnant industrial area into a world-re-
prising African music, Japanese comic books, nowned tourist center and a new focus of
Indian films, Middle Eastern tourist resorts, inward investment. An alternative (or, rather,
Argentinean wines, Thai cuisine, Brazilian a complementary) second generation of
telenovelas and other exotic fare.This trend is policy approaches has, since the mid- to late
an outcome of and a contributing factor to the 1990s, come under the scrutiny of regional
recent, if still incipient, advent of a multifac- authorities. In this instance, the objective is
eted and extensive global system of cultural less the attraction of tourists or migrants, than
products agglomerations. Thus globalization it is to stimulate the formation of localized
appears less to be leading to regional cultural complexes of cultural industries that will then
uniformity than it is increasing the variety of export their outputs far and wide. In the
options open to individual consumers. advanced economies this approach has found
expression in many different kinds of policy
Cultural industries and local and initiatives focused on diverse formulations
regional economic development such as‘creative industries’,‘experience indus-
policy tries’,‘content industries’,‘cultural industries,’
‘heritage’, and so on. There is an extensive
Cultural products industries are growing literature that draws critical attention to the
rapidly; they tend (though not always) to be difficulties associated with policy discourses
on the creative and cultural industries
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CULT URE, C R E ATIV ITY, A N D U R BA N D EV E LOPMEN T
(O’Connor 2000, 2005; Hesmondhalgh on the character of localized external econo-
2002; O’Connor 2004; Power and Scott mies of scale and scope as public or quasi-
2004; Pratt 2005; O’Connor and Xin 2006; public goods. The point here is both to
Galloway and Dunlop 2007; Mato 2009; stimulate the formation of useful agglomera-
Miller 2009). Whether understood as terms tion effects that would otherwise be under-
denoting a distinctive economic grouping, a supplied or dissipated in the local economy,
means of classifying ‘cultural’ or ‘knowledge’ and to ensure that existing externalities are
production, a framework for conjoining cer- not subject to severe misallocation as a result
tain types of intellectual or artistic labor, of market failure. Finely tuned bottom-up
these discourses are inherently tied into two measures are essential in situations like this.
wider policy concerns, namely deindustriali-
zation and knowledge economy more gen- Policymakers thus need to pay attention to
erally. Nonetheless there is an emerging three main ways of promoting collective
agreement that some sort of productive competitive advantage, which, on the basis of
industrial focus is necessary as a complement the modern theory of industrial districts can
to cultural policy in the narrow sense. Sectors be identified as (1) the building of collabora-
such as design, film/TV, popular music, tive inter-firm relations in order to mobilize
games, and fashion in virtually all European latent synergies, (2) the organization of
countries are now the object of policies efficient, high-skill local labor markets, and
focusing on supportive of firm networking, (3) the potentiation of local industrial
labor training, cluster initiatives, localized creativity and innovation (cf. Scott 2000;
institutional infrastructures, and so on. Malmberg and Power 2005). The specific
means by which these broad objectives can be
This type of approach is critically depend- pursued are many and various depending on
ent on a clear understanding of the logic and empirical circumstances, but basic institution-
dynamics of the agglomeration processes that building in order to internalize latent and
shape much of the geography of the modern actual externalities within competent agen-
cultural economy. For any given agglomera- cies and to coordinate disparate groups of
tion, the essential first task that policymakers actors is likely to be of major importance.
must face is to map out the collective order Complementary lines of attack involve
of the local economy along with the multi- approaches such as the initiation of labor-
ple sources of the increasing-returns effects training programs, creating centers for the
that invariably emanate from its inner work- encouragement of technological upgrading
ings.This in itself is a difficult task due both or design excellence, organizing exhibitions
to the problems of defining just where the and export drives, and so on, as well as socio-
cultural economy begins and ends, and to the juridical interventions like dealing with threats
intangible nature of many of the phenomena to the reputation of local product quality due
that lie at the core of localized competitive to free-rider problems (especially in tourist
advantages.That said, it is this collective order resorts), or helping to protect communal
more than anything else that presents possi- intellectual property. In addition, appropri-
bilities for meaningful and effective policy ately structured private–public partnerships
intervention in any given agglomeration. could conceivably function as a vehicle for
Blunt top-down approaches focused on generating early warning signals as and when
directive planning are unlikely in and of the local economy appears to be in danger of
themselves to accomplish much at the local locking into a low-level equilibrium due to
scale, except in special circumstances. In adverse path-selection dynamics. The latter
terms of costs and benefits and general work- problem is especially apt to make its appear-
ability, the most successful types of policies ance in localized production systems because
will as a general rule be those that concentrate the complex, structured interdependencies
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DOMINIC POWER AND ALLEN J. SCOTT
within them often give rise to long-run Currid, E. (2007) TheWarhol Economy, How Fashion
developmental rigidities. Art & Music Drive New York City, Princeton,
NJ: Princeton University Press.
While economic development based on
cultural products sectors will in all likelihood Galloway, S. and S. Dunlop (2007) “A critique of
continue to occur in the world’s richest definitions of the cultural and creative indus-
countries, a number of low- and middle-in- tries in public policy”, International Journal of
come countries are finding that they too are Cultural Policy 13(1): 17–31.
able to participate in various ways in the new
cultural economy, sometimes on the basis of Grabher, G. (2001) “Locating economic action:
traditional industries and cultures. Even old projects, networks, localities, institutions”,
and economically depressed industrial areas, Environment and Planning A 33(8): 1329–1331.
as we have seen, can occasionally turn their
fortunes around by means of well-planned Hauge, A., A. Malmberg and D. Power (2009)
cultural initiatives. To be sure, the notion of “The spaces and places of Swedish fashion”,
the cultural economy as a source of regional European Planning Studies 17(4): 529–547.
development is still something of a novelty,
and much further reflection is required if we Hesmondhalgh, D. (2002) The Cultural Industries,
are to understand and exploit its full poten- London: Sage.
tial while simultaneously maintaining a clear
grasp of its practical limitations. In any case, Horkheimer, M. (1947) The Eclipse of Reason, New
an accelerating convergence between the York: Oxford University Press.
economic and the cultural is currently occur-
ring in modern life, and is bringing in its Lash, S. and J. Urry (1994) Economies of Signs and
train new kinds of urban outcomes and Spaces, London: Sage.
opening up new opportunities for policy-
makers to raise local levels of income, Lorenzen, M. (2009) “Creativity in context: con-
employment, and social well-being. tent, cost, chance and collection in the organi-
zation of the film industry”, in A. Pratt and
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171
15
Post-socialism and transition
Bolesław Doman´ski
Introduction development under socialism.This leads to a
discussion on the current impact of the
The concepts of post-socialism and transi- structural, institutional and cultural legacies
tion are commonly used as territorial and of socialism, and the emergence of new
temporal descriptors referring to the coun- mechanisms of development. In this context
tries which experienced state socialism and the chapter addresses the issues of the winners
to the period after the fall of this system.The and losers in contemporary local and regional
rationale behind studying local and regional development, the spatial disparities which
development in post-socialist areas lies in the result and their explanations.The roles of the
belief that the social system of socialism as it key actors are considered from the relational
actually existed had distinct features which and institutional perspective, including global
could make development processes to some forces, local agency and public policies. The
extent different from their attributes in other chapter is concluded by a debate on how far
areas. From the evolutionary perspective, we the transformation processes can be concep-
cannot understand current structures and tualized as transition, modernization, and
processes, if we do not know their historical Europeanization or as a unique process.
roots.
What was specific about local
The objective of this chapter is to identify and regional development under
the structures and mechanisms which are socialism?
reproduced, transformed and/or created in
the post-socialist era.This involves the analy- The economic and political
sis of various economic, social, cultural, and system
political factors which operate at different
geographical scales (local, regional, national, The socialist system was underlain by a belief
European, global) and which originated in in the necessity and possibility of creating
the pre-socialist, socialist, and post-socialist new social reality. This mission was pursued
milieu. The focus is primarily on European by the centralized power, which attempted
post-socialist countries. to control all economic, social and political
activity, among other things, through state
At the outset a brief survey is necessary of
the specific qualities of local and regional
172
POST-SOC IA LISM A N D TR AN S ITION
ownership of the means of production and world economy, largely over-industrialized,
means of consumption. Priority was given to dominated by big state-owned enterprises
economic growth and an accompanying ide- and a limited number of SMEs.
ology of industrialization as the means of
progress. The socialist economic policy is Regional development and
described as an ‘extensive development strat- spatial disparities
egy’ as high rates of growth in output were
pursued by maintaining high rates of growth The emphasis on industrial expansion con-
in inputs rather than by increasing efficiency. tributed to the fast growth of industrial areas.
There were soft budget constraints and as a This generally enhanced disparities between
consequence an unlimited expansion drive, more developed and less developed regions;
in which overinvestment resulted in short- new growth centers mainly emerged in areas
ages, which in turn justified further invest- of resource extraction. Numerous medium-
ment.As a result the economy was limited by sized and small towns dominated by a single
supply rather than by demand and became an industry and/or factory were created and/or
economy of structural shortage (Nove 1986; expanded. Capital cities and regional admin-
Kornai 1992). istrative centers were in a privileged position
due to the system of administrative alloca-
The fundamental feature of the system tion of social goods. There was a profound
was the existence of non-market relation- crisis for non-industrial small towns. They
ships between enterprises and the adminis- had lost their traditional central place func-
trative allocation of social goods in society tions due to the nationalization and concen-
which by and large replaced the ‘anarchy’ of tration of the retail trade and services,
market exchange.This gave rise to the power together with the capturing of allocative
of gatekeepers – state agents controlling access functions by state-owned industrial and agri-
to scarce resources. Large industrial produc- cultural employers.
ers from the priority sectors integrated the
role of employers and gatekeepers and hence Another effect was the reproduction of,
gained enormous influence in local and and even an increase in, the urban–rural con-
regional space.This merger of the spheres of trast in terms of the standard of living. Vast
distribution and production represented rural regions were typical areas of multiple
industrial paternalism underlain by labor deprivation: poor housing conditions, lim-
shortages. Industrial gatekeepers sought con- ited educational opportunities, inadequate
trol over the labor market and, as a result, the health services, etc. In addition, spatially con-
administrative allocation of scarce goods and centrated industrial growth generated per-
services by key state producers became the manent demand for labor supply, which was
major source of social and spatial inequalities satisfied by mass migration of young people
(Doman´ski 1997).This was a special type of from rural areas leaving behind a dispropor-
segmentation of the labor market. tionate share of the elderly.
In sum, this social order was distinct from Rural commuters constituted an under-
capitalism as major economic activities were privileged group produced by the creation of
not conducted by private firms, accumulated new jobs with limited housing opportunities
private wealth and unemployment were not in urban places. They were paid wages, but
the principal determinants of social inequalities, denied access to housing and social services
and market relationships were largely replaced available in towns. Underlying all this was
by non-market mechanisms of distribution inadequate public transport provision ori-
of goods in the economy and society. The ented to serving the needs of major indus-
socialist economies of Central and Eastern trial employers.
Europe were relatively isolated from the
173
B O L E S Ł AW D O M A N´ SKI expense of the old and the pressure of major
employers demanding a new labor force. Last
Urban issues but not least, the serious environmental
problems that arose in many places stemmed
Large cities and medium-sized industrial from the lack of environmental concern.
towns experienced faster growth and enjoyed
relatively better life chances than small towns All in all, industrial towns were privileged
and rural areas. However, they suffered at vis-à-vis other urban places which might
least to some degree from so-called ‘crippled suffer from stagnation, but they often experi-
urbanization’(Doman´ski 1997).The endemic enced pathological growth themselves. The
feature of urban growth under socialism was activity of huge industrial enterprises did not
the imbalance between industrial expansion contribute to the development of the social-
and underdeveloped housing and social infra- ist town but rather represented development
structure provision. This can be accounted in the town, bearing some resemblance
for by the absence of mechanisms linking to the effects of industrialization on early
local economic and population growth with capitalist towns. This was underlain by sup-
the supply of infrastructure and services. pressed local initiative, deficient social insti-
There was no local taxation and there were tutions and the absence of territorial
no multiplier effects – mechanisms, whereby self-government.
local authorities and independent agents
could develop provisions in response to the Post-socialism: the role of
demand created by the employees. Planning, path-dependence vs. new
which was meant to substitute for these mechanisms
mechanisms, failed since the socialist system
lacked agents capable of enforcing local and The emphasis in many publications on post-
regional plans. Local and regional authorities socialist transition is on macro-economic
always had very limited bargaining power and political institutional changes, namely
with the economic entities which controlled privatization, liberalization, democratization,
the basic assets and represented branch min- and internationalization. The major focus
istries – the pillars of the socialist system of here is on the one hand on the impact of
power. Thus large industrial employers were socialist and pre-socialist legacies and on the
able to disregard territorially organized other on the emergence of new mechanisms
administration and shift scarce resources to and factors of local and regional development.
their advantage (Smith 1989; Doman´ski
1997). The restitution of private ownership of
land and other assets was a complex, inevita-
Vast groups of town dwellers experienced bly conflict-ridden process, which took dif-
deprived access to many social goods due to ferent forms in individual countries. It
industrial paternalism; women and the eld- produced fragmented ownership in certain
erly were most affected. Industrial towns domains and areas, and its concentration in
offered limited secondary and tertiary educa- others. One specific institutional legacy is an
tional opportunities, being oriented at sup- uncertain legal status of some areas and
plying the manual workers sought by inconsistencies in the cadastre system which
industrial employers. There were company may frustrate tax collection and investment.
enclaves in towns and some urban places A different division of power and relation-
became company towns. The deteriorating ships between the state and local/regional
conditions in old residential districts resulted authorities was molded in various countries.
from a preoccupation with the supply of new There were powerful agents responsible for
dwellings and the neglect of the existing ownership transfer, e.g., Treuhand in eastern
housing stock, which reflected both the ide-
ologically laden emphasis on the new at the
174
POST-SOC IA LISM A N D TR AN S ITION
Germany. Finally, new foreign-controlled activities at national, regional and local scales.
players, including global transnational corpo- This finds economic expression in entrepre-
rations (TNCs) and international bodies neurship levels and attitudes to work and can
(e.g., IMF, EU), began to play an important be related to earlier migrations and contacts
role. All these institutional transformations with relatives and friends in Western Europe
entailed change in economic linkages and and North America. One should not forget
power relationships discussed later. about the differences in the nature of the
socialist regimes, some of which left more
From the point of view of local and room for individual economic activity and
regional development, the critical change contacts with abroad.The devastating impact
took place in the functioning of the labor of the erosion of trust in the relationships
markets (Rainnie et al. 2002).The shift from between citizens and public institutions char-
a situation where employers had to search for acteristic of state socialism lasted longer in
employees to an employer-dominated market some regions than in others. A widespread
and unemployment led to the erosion of the belief in the irreparable crisis inherent in the
gatekeeping role of large employers as socialist system, with its lack of hope, made
distributors of social goods in local com- the inhabitants of some Central European
munities. The re-emergence of demand-led regions more open to radical change in the
multiplier effects eradicated the former early days of the transformation. Where
imbalance between the production of capital people widely believed that vast changes
goods and the supply of consumer products were necessary and/or inevitable, they were
and services in urban areas.At the same time, more prone to face up to new challenges,
new mechanisms of social and spatial ine- even though they could be disappointed with
qualities appeared based on the segmentation the consequences of the reforms.The signifi-
of the capitalist labor market and the spatial cant differences in contemporary public atti-
reorganization of economic activities, wors- tudes, civil activity and institutions persist.
ening access to social goods for certain Many authors point to the legacy of the old
groups and places. Spatial variation in hous- cultural divide between Western and Eastern
ing costs became a significant factor in Christendom and Western Christianity and
migration. Suburban migration of the mid- Islam.A specific merger of political and eco-
dle-class increased, whereas the mobility of nomic power structures, patron–client rela-
the poorer segments of society was impeded tions, an aversion to transparency and high
(Pickles and Smith 1998; Bradshaw and corruption levels may be rooted in the
Stenning 2004). former Tsarist, Soviet and Ottoman mono-
polization of power (Turnock 2003;Van Zon
The fundamental material legacy of the 2008).
pre-socialist and socialist past lies in the eco-
nomic structures of towns and regions, their On the whole, there are clear indications
infrastructure and environmental situation of both continuity and new mechanisms of
which usually foster continuity and some- local and regional development related to the
times change in development trends. They (re)introduction of a capitalist economy and
are also affected by local educational levels the integration into global networks and
and facilities and the demographic structures dependencies. Path dependence can be iden-
formed in the past. tified especially in the case of some patterns
of ownership, the layers of investment, the
Important as the changing formal institu- reproduction of demographic and educa-
tions and material structures are, we cannot tional structures as well as public attitudes and
ignore the impact of the range of informal civic activity built upon pre-socialist founda-
institutions and practices embedded in social tions. The new labor market segmentation
networks and culture. There is enormous
variation in social images, aspirations and 175
B O L E S Ł AW D O M A N´ SKI
and migration patterns represent more recent face up to previously unknown foreign com-
mechanisms. We may now explore how this petition. Their performance is conditioned
manifests itself in the development of regions by the success of the sector and/or of indi-
and localities. vidual enterprises.
Regional disparities and their The effects of deindustrialization are most
explanations in post-socialism dramatic in single-industry or, still worse,
one-factory towns, which are the product of
Metropolitan areas early capitalist or socialist industrialization.
The places that relied on shrinking sectors,
The most obvious winners of the post- such as manufacturing of textiles, heavy
socialist transformation are metropolitan engineering and military equipment, and
areas.They benefit from the development of resource extraction became especially vul-
advanced producer services, a broad range of nerable. Towns dominated by huge defense-
consumer services and the location of new related producers, expanded during the Cold
manufacturing plants, being the most attrac- War arms race, were often developed in
tive place for both foreign investment and peripheral regions for strategic reasons.
the growth of small- and medium-sized
indigenous firms. Partners for cooperation The seeds of the crisis in many industrial
can more easily be found here, so large inves- towns and regions can be found in their
tors are more likely to become regionally economic structure and its social and institu-
embedded. tional consequences. The structurally unsus-
tainable dependence upon individual sectors
The success of metropolitan areas rests on and on large plants, commonly with obsolete
the size of their market, a pool of skilled technology, was accompanied by weak SMEs
labor and good accessibility. Therefore they and an underdeveloped tertiary sector with a
take advantage of their favorable position distorted educational structure.The situation
inherited from the past and profit from new could be exacerbated by environmental
locational factors which came to the fore problems. From the point of view of loca-
with the advent of the market economy.The tional factors which have become important
growing diversified economic base, interna- in the market economy, many industrial
tional linkages and the increasing standard of towns lack a large enough market, adequate
living nurture agglomeration forces which services and attractive living conditions, a
may sustain their further growth. This is quality labor force, and sometimes good
especially true of the metropolitan areas accessibility. The symptoms of a crisis have
based on major cities, which host high-order sometimes triggered a defensive reaction
service functions.The development of poly- geared toward maintaining the old local/
centric urban regions may be slowed by their regional trajectory and opposing changes – a
industrial legacy. path-dependent mechanism of institutional
lock-in (Grabher and Stark 1997).Thus dein-
Industrial regions and towns dustrializing towns can not only experience
the disappearance of their former economic
The intensively industrialized regions and activities, but, to make matters worse, may
localities found themselves in a dubious situ- not be able to mobilize local financial and
ation with the fall of socialism, which priori- cultural assets to launch themselves on a new
tized industrial growth. They lost their development path. This is accompanied by
privileged access to public resources at the the growing intra-urban social disparities
same time as their major firms were made to typical of post-socialist towns.
176 Still, towns and regions dependent on
growing industrial sectors and firms may
POST-SOC IA LISM A N D TR AN S ITION
do well. For example, one can observe the areas.This indicates the reproduction of some
growth of several export-oriented resource- earlier spatial structures, but also newly
producing regions in Russia (Bradshaw 2006). emerging patterns in the form of the fast
Large old industrial regions with good acces- growth of suburban and outer metropolitan
sibility may undergo successful restructuring, zones along with the crisis of some industrial
despite a decline of traditional sectors,attract- areas.
ing new manufacturing and service activities
thanks to their large market, technical skills Thus, both elements of continuity and
and other economies of agglomeration. change are evident, though some sort of con-
tinuity seems to prevail.This is evident in the
Peripheral non-metropolitan strengthening of many developed regions
rural areas and the formidable barriers to development
faced by peripheral ones. The continued
The inferior position of non-metropolitan privileged position of the former can be
rural regions has been significantly aggra- interpreted as the result of self-reinforcing
vated in the post-socialist era. Poor accessi- processes fostered by forces of agglomeration
bility associated with the inadequate road built upon earlier structures and their con-
system has undermined their attractiveness formity with the new needs of market, acces-
to investment and has become a barrier to sibility and quality of labor. They also offer
spill-over effects from the growth of metro- the best innovation and learning potential. A
politan areas. Fragmented private agriculture stable settlement hierarchy with a dominant
with hidden unemployment, the collapse of position for major cities is vital here. A small
state farming, the closures of socialist branch market, low standard of living, and demo-
plants, and the shortage of young and edu- graphic distortions in peripheral rural areas
cated people lie at the root of the generally cause limited local entrepreneurship and slow
low standard of living, limited market and development. Eastern regions can be particu-
poor human capital.All this hinders the multi- larly disadvantaged from the foreign invest-
functional endogenous development of rural ment and export linkage point of view when
regions (Turnock 2003). A more favorable compared to areas in geographical proximity
situation can be found in some border regions to Western Europe. On the other hand, the
which may now profit from local transborder structural legacies may put certain towns and
trade and service activity. This is especially regions at a disadvantage due to their depend-
the case with areas adjacent to the old ence on shrinking industrial sectors and the
EU countries. Other more successful poor vulnerability of single-factory towns.
areas may include the main transportation
corridors. The salient mechanisms underlying cur-
rent local and regional development trends
Spatial dynamics and disparities: are of an economic nature, but demographic,
continuity or change? social and cultural determinants have a pro-
found effect.The impact of local and regional
There is a fundamental question concerning structures has been strengthened rather than
continuity or change in patterns of local and superseded by new international relation-
regional development in post-socialist coun- ships.The importance of local trajectories of
tries. In general, diversified metropolitan development manifests itself in the fact that
regions perform better than industrial towns prosperous towns and pockets of unemploy-
and regions and non-metropolitan rural ment or stagnation are often found next to
each other in both growing and declining
regions, reflecting successful or unsuccessful
local restructuring processes and adjustment
to the circumstances of the global economy.
177
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