Emerging Clusters: Theoretical, Empirical and Politcal Perspectives on the Initial Stage of Cluster Evolution (Industrial Dynamics, Entrepreneurship and Innovation)

Emerging Clusters

INDUSTRIAL DYNAMICS, ENTREPRENEURSHIP AND INNOVATION Series Editors: David B. Audretsch, Ameritech Chair of Economic Development, Indiana University, Bloomington, USA, Uwe Cantner, Friedrich Schiller University Jena, Germany and Dirk Fornahl, BAW Institute for Regional Economic Research, Bremen, Germany This series aims to discover important new insights in the relationship between the three cornerstones of economic development: industrial dynamics, entrepreneurship and innovation. In particular, the series will focus on the critical linkages between these three foundations. For example, the entry and exit of firms with differentiated growth processes can influence industrial development, but at the same time can also reflect the current industrial context shaping the entrepreneurial activities of single firms or individuals. A similar interaction linking industrial dynamics to entrepreneurship and innovation can also be identified. For instance, the particular technological regimes of industries may influence innovative activities, but the technological trajectory and type of innovative activity can, in turn, have a positive or negative influence on industry development. Innovation and entrepreneurship are also closely linked, since many types of entrepreneurial activities are barely distinguishable from similar innovative endeavors. Hence, the series addresses the linkages among the three fields in order to gain new findings concerning the nature of economic change. Theoretical, empirical as well as policy-oriented contributions are welcome. Titles in the series include: Innovation in Low-Tech Firms and Industries Edited by Hartmut Hirsch-Kreinsen and David Jacobsen Entrepreneurship and Openness Theory and Evidence Edited by David B. Audretsch, Robert E. Litan and Robert J. Strom Emerging Clusters Theoretical, Empirical and Political Perspectives on the Initial Stage of Cluster Evolution Edited by Dirk Fornahl, Sebastian Henn and Max-Peter Menzel

Emerging Clusters Theoretical, Empirical and Political Perspectives on the Initial Stage of Cluster Evolution

Edited by

Dirk Fornahl BAW Institute for Regional Economic Research, Bremen, Germany

Sebastian Henn Martin Luther University Halle-Wittenberg, Germany

Max-Peter Menzel University of Hamburg, Germany

INDUSTRIAL DYNAMICS, ENTREPRENEURSHIP AND INNOVATION

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Dirk Fornahl, Sebastian Henn and Max-Peter Menzel 2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009938416

ISBN 978 1 84844 522 2

02

Printed and bound by MPG Books Group, UK

Contents List of contributors Acknowledgements 1.

Emerging clusters: a conceptual overview Max-Peter Menzel, Sebastian Henn and Dirk Fornahl

PART I

2.

3.

4.

6.

7.

1

ACCIDENTS, PATH DEPENDENCY AND STRATEGIC ACTION

Jacobian cluster emergence: wider insights from ‘green innovation’ convergence on a Schumpeterian ‘failure’ Philip Cooke Economic policy and its impact on the evolution of clusters and spatial systems exemplified by German TV programme production Ansgar Dorenkamp and Ivo Mossig Bridging ruptures: the re-emergence of the Antwerp diamond district after World War II and the role of strategic action Sebastian Henn and Eric Laureys

PART II

5.

vii ix

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INSTITUTIONS AND ENDOGENOUS DYNAMICS

Origins of human capital in clusters: regional, industrial and academic transitions in media clusters in Germany Anne Otto and Dirk Fornahl The co-evolution of ICT, VC and policy in Israel during the 1990s Gil Avnimelech and Morris Teubal Standards as institutions supporting the cluster emergence process: the case of aquaculture in Chile Paola Perez-Aleman

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140

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PART III 8.

9.

10.

11.

The evolution of the banking cluster in Amsterdam, 1850–1993: a survival analysis Ron Boschma and Floris Ledder The role of the university in the genesis and evolution of research-based clusters Donald Patton and Martin Kenney Sources of ‘second generation growth’: spin-off processes in the emerging biochip industries in Jena and Berlin Max-Peter Menzel The emergence and development of the Cambridge ink jet printing industry Elizabeth Garnsey, Erik Stam and Brychan Thomas

PART IV

12.

13.

PATTERNS OF EMERGENCE AND GROWTH

214

239

265

CLUSTER EMERGENCE AND EMERGENCE OF CLUSTER POLITICS

Neither planned nor by chance: how knowledge-intensive clusters emerge Rolf Sternberg Policy transfer and institutional learning: an evolutionary perspective on regional cluster policies in Germany Matthias Kiese

Index

191

295

324

355

Contributors Gil Avnimelech, Faculty of Business Administration, Ono Academic College, Kiryat Ono, Israel Ron Boschma, Urban and Regional Research Centre Utrecht (URU), Utrecht, Netherlands Philip Cooke, Centre for Advanced Studies in Social Sciences, Cardiff School of City and Regional Planning, Cardiff University, Cardiff, United Kingdom, and Adjunct Professor, School of Development Studies, Aalborg University Ansgar Dorenkamp, Department of Geography, Philipps-University Marburg, Marburg, Germany Dirk Fornahl, BAW Institute for Regional Economic Research GmbH, Bremen, Germany Elizabeth Garnsey, Institute for Manufacturing, Centre for Technology Management, University of Cambridge, Cambridge, United Kingdom Sebastian Henn, Institute for Geosciences, Martin Luther University Halle-Wittenberg, Halle (Saale), Germany Martin Kenney, Department of Human Community Development, University of California, Davis, USA Matthias Kiese, Institute for Competitiveness and Communication, School of Business, University of Applied Sciences Northwestern Switzerland, Olten, Switzerland Eric Laureys, Scientific and Technical Information Service (STIS) of the Belgian Federal Science Policy Office, Brussels, Belgium Floris Ledder, Real Estate, Rosmalen, Netherlands Max-Peter Menzel, Institut for Geography, University of Hamburg, Hamburg, Germany Ivo Mossig, Institut for Geography, University of Bremen, Bremen, Germany

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Anne Otto, Institute for Employment Research (IAB) RhinelandPalatinate-Saarland, Saarbrücken, Germany Donald Patton, Department of Human and Community Development, University of California, Davis, USA Paola Perez-Aleman, Desautels Faculty of Management, McGill University, Montreal, Canada Erik Stam, Utrecht School of Economics, Utrecht University, Utrecht, Netherlands Rolf Sternberg, Institute of Economic and Cultural Geography, Leibniz University of Hanover, Hanover, Germany Morris Teubal, Department of Economics, Hebrew University, Jerusalem, Israel Brychan Thomas, Welsh Enterprise Institute, Business School, University of Glamorgan, Pontypridd, United Kingdom

Acknowledgements This book is the outcome of the workshop ‘Emerging Clusters. Theoretical, Empirical and Political Aspects of the First Stage of Cluster Evolution’, held at the Max Planck Institute of Economics, Jena (Germany) in June 2008. We are indebted to the Max Planck Society for providing us with the opportunity to organize the workshop and for bringing together this group of scientists in order to discuss ideas and produce this book. Furthermore, the editors would like to thank all the authors for contributing their papers and taking part in the refereeing process.

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1.

Emerging clusters: a conceptual overview Max-Peter Menzel, Sebastian Henn and Dirk Fornahl

Economic activity is unevenly distributed in space. This fact has often been associated with spatial concentrations of firms in related fields commonly termed as ‘clusters’ (Malmberg and Maskell 2002). As such clusters are considered centers of economic activity and important elements in economic development in general and in regional development in particular (Porter 1998) it is not surprising that there have been many efforts to better understand in detail the benefits of regional clustering and the processes occurring in functioning clusters (Martin and Sunley 2003). While classical explanations refer to Marshall’s (1917) ideas of agglomeration externalities like a common regional labor pool, specialized suppliers, a shared infrastructure and knowledge spillovers (see also Gordon and McCann 2000), some additional factors beneficial for geographically concentrated firms have been identified in the past two decades (Armington and Acs 2002). Besides others they include the access to networks (OwenSmith and Powell 2004), to a local science base (Zucker et al. 1998) and/ or to local knowledge in general (Malmberg and Maskell 2006), but also ‘buzz’ in the sense of a diffuse and pervasive sharing of information (Bathelt et al. 2004), the co-ordination of complex tasks (Torre and Rallet 2005), local competition (Porter 1998), supportive institutions (Kenney and von Burg 1999) and the characteristics of regional cultures (Saxenian 1994). Though the strong research focus on the functionality of clusters has without doubt resulted in a profound knowledge about the processes occurring within regional clusters, it has largely involved a disregard of the questions how spatial concentrations actually come into being and how they gradually develop (Lorenzen 2005; Frenken and Boschma 2007). Knowing more about the drivers behind cluster formation and change, however, is not only of academic interest but rather a necessary precondition for plausible policy advice aiming at influencing the established

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patterns of economic activity, for example by generating new growth centers in peripheral regions.

1

SOME FACTS ON THE EMERGENCE OF CLUSTERS

It is only recently that several contributions have addressed the existing research gap on cluster emergence (see for example Braunerhjelm and Feldman 2006). A short review of the most influential results of these studies will be given in the following. To start with, a differentiation has to be made between the features leading to the genesis of a cluster and those guaranteeing its functioning as is suggested by the studies by Orsenigo (2001) and Breshnahan et al. (2001). While a functioning cluster is marked by a critical mass of companies necessary for maintaining its endogenous dynamics, we use the notion ‘emergence’ when referring to the first stage of cluster development, that is the evolution of firms and institutions until their number reaches this critical mass. Emergence thus describes a broad continuum ranging from ‘normal’ economic activities to the stage of firms becoming ‘geographic concentrations of interconnected companies and institutions in a particular field’ (Porter 1998, 78). As the evolution of clusters must be considered a complex process it is neither possible to reduce their formation to only one single process nor to identify and analyse all factors which might be of importance in that context. The following survey therefore inevitably only covers those parts of the current discussion which we believe to be the most important research areas: the link between new clusters and established regional paths, the generation of institutions and endogenous dynamics as well as the patterns of emergence of successful clusters. 1.1

Accidents, Path Dependency and Strategic Action

Several concepts like the ‘window of locational opportunity’ approach (Scott 1988; Storper and Walker 1989), the core–periphery model by Krugman (1991) or the stochastic approaches based on the models by Arthur (1994) explain the emergence and growth of clusters as two distinct processes. The common rationale of these approaches is simply put as follows: the emergence of a cluster can be traced to ‘some seemingly historical accident’ (Krugman 1991, 35) leading to a number of new firms at a certain location. Once a certain threshold has been reached, agglomeration economies in the form of a regional labor-market

Emerging clusters: a conceptual overview

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pooling, specialized suppliers and knowledge spillovers will occur (Arthur 1994). In general, these approaches suggest not to regard clusters as a logical outcome of a purposeful process but rather as a result of industrial dynamics which as such is difficult to assess. Apart from the so-called generic factors like a strong science base, an entrepreneurial culture and supportive institutions, the requirements of the future industries are unknown a priori. From this it follows that it is difficult to predict where a new industry or a new cluster, respectively, will start to form (Storper and Walker 1989). The explanatory value of these rather general approaches for understanding the emergence of single clusters has been discussed quite intensely. With special consideration of the core–periphery model, Pinch and Henry (1999, 819), criticize their ‘spot the accident’ logics. According to them, ‘accidents’ could be explained when considering the specifics of the given regional context. Martin and Sunley’s (2006, 418) critique points in the same direction when they argue that events would lose their ‘accidental character’ by thoroughly controlling the specific spatial and temporal context in which they occurred. In addition, they stress that ‘accidental events’ can be both provoked and exploited by strategic actions. According to this line of argumentation, ‘accidents’ simply make up events outside the explanatory range of any approach. Then, however, the question still remains how and why certain events trigger the emergence of a cluster in one region but not in another. When looking into the factors exerting influence on cluster formation, usually firm formations stand out as the most essential components (Feldman et al. 2005; Menzel and Fornahl 2005). This, however, should not hide the fact that firm formations themselves are affected by certain processes which also have been addressed in literature: Bathelt and Boggs (2003) for example highlight the rebundling of different technological trajectories by local actors as one major factor for the emergence of the media cluster in Leipzig. Referring to the example of the British motorcar sports industry in Oxfordshire, Pinch and Henry (1999) in contrast illustrate how new clusters are based upon technologies which are deeply embedded in the regional context. Owen-Smith and Powell (2006) again show that although network structures might differ during the emergence of the biotechnology clusters analysed, they become more similar during their development. All in all, the studies suggest that even though successful clusters might resemble each other, their origin still depends on a particular local context (Feldman et al. 2005).

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Emerging clusters

Institutions and Endogenous Dynamics

When a new industry comes into being many regions will usually host the new firms while clusters will emerge only in some of them (Romanelli and Feldman 2006; Klepper 2007). Whatever is the logic behind the initial formations of companies, firms have to exhibit growth rates above average, at least for a certain time, in order to contribute to the formation of a cluster (Jacobs 1969). Therefore, the second field, which will be outlined here, deals with the factors and processes leading from single firm formations to aggregated cluster dynamics, that is the emergence of the endogenous cluster dynamics (Scott 2006). There are several examples showing that clusters did not emerge in those regions which exhibited most firms right from the start (Romanelli and Feldman 2006, Scott 2006, Klepper 2007). Rather, the dynamics which resulted in the formation of clusters started earlier or more strongly in the smaller concentrations. This suggests that the genesis of cluster dynamics does not only depend on the number and size of the firms as well as on generic assets but also on the local capability to form specific assets, even at a very early stage. However, assets such as specialized institutions and infrastructures known from successful clusters like Silicon Valley often form after the cluster in question has already emerged (see for example Longhi 1999 and Feldman 2001). The same holds true for a local labor pool. Following the ‘window of locational opportunity’ approach (Storper and Walker 1989), a specialized pool of labor does not exist due to the newness of an emerging industry. Rather, the growth of firms in the industry is said to attract people from other places. In contrast, Zucker et al. (1998), however, show that new firms in the biotechnology industry have emerged mostly at places where star scientists were located thereby implying that high-technology industries locate at those places, where a labor pool already had been established due to the research programs and postgraduate education in scientific organizations. Though the establishment of regional institutions and a local labor force must be regarded as an important part of cluster emergence, it obviously is not the only element responsible for the dynamic processes. Also associated with cluster emergence is the localization of knowledge generation. Empirical studies show that both knowledge exchange and collaborations are highly localized at the beginning of an industry life cycle (Audretsch and Feldman 1996) and that those industries form clusters that exhibit a large degree of localized collaborations (Brenner 2005). On the whole, these results point out that a connection between the localization of knowledge generation and the collective establishment of cluster-specific institutions seems to be responsible for successful cluster emergence.

Emerging clusters: a conceptual overview

1.3

5

Patterns of Emergence and Growth

A third, and probably the most recent, strand of literature has developed focusing on the patterns of emergence of clusters and industries. This literature indicates that the successful emergence of a cluster is often marked by a particular kind of firm formation, namely spin-offs (Romanelli and Feldman 2006; Klepper 2007). Just to give some examples for this: Klepper (2007) describes how the automobile cluster in Detroit emerged as a result of spin-off activities which can be traced to three incubators: Olds, Cadillac and Buick. Additionally, other types of formations in the cluster did not perform better than comparable firms in other regions and thus did not seem to benefit from agglomeration economies. Similar results were found for the tire cluster in Akron by Bünstorf and Klepper (2009). Romanelli and Feldman (2006) again identify that the largest clusters in the bio-therapeutics industry in the US formed not only where new firms were founded by entrepreneurs from the local science base, but also by the already established firms. They refer to the process by which early firm formations generate spin-offs as to ‘second-generation growth’ and argue that this would be an essential factor for the emergence of clusters. The obvious importance of spin-offs for the formation of clusters has been explained by Klepper (2007) with a heredity theory stating that firms with better routines grow stronger and generate more and better spin-offs. As spin-offs tend to locate close to their incubators, large concentrations may emerge without any necessity of positive externalities between the firms in question. The observation that spin-offs usually perform above average led to the assumption that even if there are some kinds of positive regional externalities, they might be concentrated on only some spinoffs. This argument of course challenges the commonly accepted view on agglomeration economies as a pervasive force which reinforces regional concentrations (Harrison et al. 1996; Pinch and Henry 1999; Martin and Sunley 2006).

2

ORGANIZATION OF THE EDITED VOLUME

Even though some valuable insights have recently been gained about how clusters actually emerge, the novelty of this aspect still implies that answering one question leads to several new ones. Therefore, this edited volume does not claim to exhaust the entire research field. The aim of this book is rather to elaborate and structure the questions which need to be asked, to give some indications as to how they could be answered, and to shed some light on possible directions for future research. In doing so, it tries to cover

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Emerging clusters

some glimpses of the entire bandwidth of research on cluster emergence by gathering contributions from different research fields dealing with different aspects of cluster emergence by addressing different objects of analysis and different theoretical approaches. In detail, the book is structured around three core fields of research complemented by a policy section. The first part deals with the question how the seed for the cluster is planted and how the cluster is linked to established regional paths. It discusses cluster emergence as a result of regional learning, accidental events and strategic action. The second part deals with the question how the positive externalities and cluster-specific institutions which feed endogenous cluster dynamics come into being. The third part moves to the firm level and investigates the growth patterns during cluster emergence. Finally, the fourth part concludes with the question how policy can influence these processes. The first part of the book, Accidents, Path Dependency and Strategic Action, contains three chapters. In Chapter 2, Philip Cooke presents a new theoretical approach on cluster emergence based upon two fundamental innovation processes. The first one is ‘railroadization’ which is Schumpeter’s fourth form of innovation and describes how externalized organizational innovations like infrastructural investments in railroads, freeways, universities or wireless broadband open up agricultural lands allowing early clusters to form in proximity to key-network nodes or ‘hubs’ of these investments. The second innovation process is based upon railroadization. Where the regional context gives opportunities for Schumpeterian ‘new combinations’ from regionalized ‘related variety’, Jacobian clusters emerge through technological convergence. Cooke exemplifies his approach by studying the green technology clusters in California, North Jutland, Wales and Norway. In Chapter 3, Ansgar Dorenkamp and Ivo Mossig analyse the emergence of regional clusters in the broadcasting industry in Germany. They show that the current locational pattern is the outcome of past decisions and accidental events. For a considerable time, broadcasters under public law acted as monopolistic market pioneers. In 1984, when private companies were allowed to enter the market, their choice of location was primarily influenced by both public granting policies and the necessity to make use of qualified personnel. As a consequence, the locations of the public broadcasters were strengthened and most of them provided seedbeds for further clustering. Using the example of the Antwerp diamond cluster, Sebastian Henn and Eric Laureys consider the role of strategic action during the emergence of a cluster in Chapter 4. Antwerp, which had served as the center of diamond trading and polishing for hundreds of years, re-emerged after

Emerging clusters: a conceptual overview

7

World War II even though the industry-related activities and infrastructure to a large extent had been discontinued, respectively destroyed. In contrast to the literature which regards chance as the major determinant of cluster emergence, Henn and Laureys argue that deliberate actions to establish Antwerp as the leading center again were the main drivers for its resurrection. Each of the chapters elaborates different influences on the location of clusters: infrastructure building and regional innovations, accidents and policy decisions as well as strategic action. While general patterns of cluster emergence are observable, the results indicate that the reasons for the exact locations often are idiosyncratic. Part II, Institutions and Endogenous Dynamics, consists of three chapters focussing on both the externalities which are typical for successful clusters and on how they are created. In Chapter 5, Anne Otto and Dirk Fornahl deal with the interrelation between the development of clusters and labor markets. Although it is common sense that successful clusters rely on a strong local human capital base, there is little evidence on the emergence of such local labor market pools. By analysing the mobility in emerging and growing clusters in Germany’s audiovisual media industry, the authors find that especially the emerging stage has been characterized by intense inflows of labor, while growing clusters usually have established a local labor market and thus are less dependent on labor inflows. In Chapter 6, Gil Avnimelech and Morris Teubal investigate the coevolution between VC and cluster emergence by studying the example of the ICT cluster in Israel during the 1990s. Placing a special focus on the transition from the pre-emergence stage to the emergence stage they identify that venture capital exerts a twofold influence on the emergence of clusters: a direct effect by their portfolio and an indirect effect as they stimulate start-up creation and act as a focusing device or gatekeeper to global networks. In turn, the growth of firms and the cluster attracted more VC. They conclude with a discussion of the interactive relationship between cluster emergence and the development of a VC infrastructure. Finally, in Chapter 7 Paola Perez-Aleman uses the example of the Chilean salmon industry to highlight the importance of institutions as a crucial factor for the growth of firms in an emerging cluster. Being latecomers to the industry, the Chilean companies started setting up different standards like product classifications, quality-control mechanisms and regulations to reduce the mortality of fishes. During the process of standardization, the firms gradually improved their knowledge and products. As a consequence, the once small-scale industry became the world’s leading producer of salmon. All three chapters strongly indicate that there is a difference between the

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Emerging clusters

emergence of clusters and their functioning, as the growth of the clusters is accompanied by the establishment of particular institutions like labor markets, venture capital, or common standards. The contributions do not only confirm previous studies (Bresnahan et al. 2001; Orsenigo 2001) but also amend them by showing that institutions neither precede nor follow cluster emergence, but co-evolve with it. Whether the emerging cluster becomes a growing and functioning cluster therefore highly depends on its capability to develop a distinct institutional setting. The chapters in Part III of the book, Patterns of Emergence and Growth, investigate the patterns of firm formation which are symptomatic for a successful emergence of clusters, namely spin-off processes. In Chapter 8, Ron Boschma and Floris Ledder link the window of locational opportunity concept to the approaches on industrial dynamics developed by Klepper (for example Klepper 2007) to describe why Amsterdam became the leading banking cluster of the Netherlands. In detail, their analysis is based on a unique database of all entries and exits in the banking sector in the Netherlands during the period 1850–1993. The authors examine the extent to which spin-off dynamics, the time of entry and the location of Amsterdam had a significant effect on the survival rate of banks during the last 150 years. They find that a window of locational opportunity was open until the first half of the 19th century and that Amsterdam’s leading role in the Dutch banking system is rather due to spin-off dynamics than to regional externalities. In Chapter 9, Donald Patton and Martin Kenney take a closer look at clusters in Illinois and Wisconsin that have evolved around large elite universities. One major finding of their comparison is that the fields of activity of those university spin-offs that are at the heart of their clusters reflect the relative strengths of their incubators. Another important result is that both clusters exhibit totally different structures: while in Illinois only a structural core of a cluster could develop so far, the cluster in Wisconsin has entered a second stage of cluster formation which has been characterized by spin-offs from existing firms. The authors attribute their findings mainly to differences in the entrepreneurial environments in the two locations. In Chapter 10, Max-Peter Menzel investigates the sources of ‘second generation growth’ using the biochip industries in Jena and Berlin as examples. The industries at both locations exhibit a growth pattern as predicted by Klepper’s (2007) heredity theory as only a few firms generated spin-offs. However, the knowledge embodied in the spin-offs had not been created in the parent firms but rather by interacting with other regional actors. From this observation Menzel concludes that it is not only birth and heredity but also the regional context which affects the propensity of second generation growth.

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Elizabeth Garnsey, Erik Stam and Brychan Thomas describe the genealogical and ecological processes which have led to the emergence of the inkjet-printing cluster in Cambridge in Chapter 11. The Cambridge inkjet-printing cluster is marked by a substantial number of large firms, it has no direct university lineage, and it is more demand-driven than most other high-tech industries in the region. Spin-off processes were mainly responsible for the emergence of the cluster while the local ecology evolved gradually via the labor market. However, the recent renewal of the cluster was accompanied by a reconnection to the university. The four chapters of this part confirm existing studies which highlight the importance of spin-off processes for the emergence of clusters. Yet, each chapter gives different reasons for the spin-off phenomenon, which in a way reflects differences in the chosen industry, region and historical era. While the analysis of Boschma and Ledders confirms the Klepper literature by stating that the central process behind spin-offs are birth and heredity, Patton and Patton argue that a distinct entrepreneurial milieu is responsible for spin-off processes, and Menzel traces the origin of spin-offs to regional learning processes. Additionally, Garnsey, Stam, and Thomas show that spin-offs were responsible for the emergence of a cluster, but regional collaborations for its renewal. Part IV, Cluster Emergence and Emergence of Cluster Politics, changes the perspective from theoretical explanations and empirical investigations of cluster emergence to the question if and how policy support influences the emergence of clusters. In Chapter 12, Rolf Sternberg studies the impact of policy on cluster emergence by comparing ten high-technology regions in the USA, UK, Japan, France and Germany. His analytical framework contains factors derived from different approaches assumed to be relevant for cluster emergence. According to him, a variety of factors has to come together for making clusters emerge: in this context, the nation’s and/or a state’s technology policy activities together with the R&D infrastructure could be identified as the most important factors in the emergence of most clusters. However, most of the clusters analysed were not an intended outcome of explicit government policies, and non-governmental factors seem to have played a role as well. Matthias Kiese concentrates on the diffusion of cluster policies in Chapter 13. He conceptualizes the diffusion of cluster policies as repeated acts of policy transfer taking multiple channels such as manuals, consultants, knowledge communities and policy tourism. His interviews with practitioners in ministries and economic development agencies, cluster managers and consultants, as well as independent observers in Germany reveal that policy-makers and practitioners mainly learn from knowledge incrementally accumulated through learning-by-doing and less through

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interregional policy transfer, which is mainly used as an inspiration. Hence, external ideas are taken up but adapted to fit to the specific regional context. The findings of the chapters in this part clearly indicate that dedicated cluster policies are only one, yet an important element in an array of factors responsible for cluster emergence. Obviously, there is not a best practice, and policies to support clusters have to be adapted to local conditions and the contemporary socio-economic context.

3

PATHWAYS FOR FUTURE RESEARCH

The contributions of this edited volume aimed at structuring the research questions and indicate directions for further research. One core question still to be answered is how new clusters are connected to established regional paths and assets. The bandwidth of the existent literature ranges from path dependency to windows of locational opportunities and accidental events. There are empirical studies for each explanation. While the contributions of this edited volume indicate that there are ex-post explanations which go beyond random events, they also point to the fact that there is no single explanation that accounts for all clusters. Why a particular path is chosen and which processes influence if, how and why a new cluster adheres to established development paths are questions still requiring further analysis. Another point deserving further consideration is how the endogenous dynamics of clusters come into being. The contributions of this book indicate that these dynamics are connected to the establishment of specific institutions. How and under which circumstances these institutions are created, which factors trigger this co-evolution and under which conditions this co-evolution takes place, are other questions for further research. A further promising road for research is the investigation of growth patterns. While the contributions of this book confirm existent studies emphasizing the importance of spin-offs for cluster emergence, they give different explanations for the drivers behind the spin-off processes: inheritance of firm routines, regional learning processes, or an entrepreneurial milieu. These different results point to the difficulties of empirically grasping the process of cluster emergence. Research on cluster emergence often is made ex-post, meaning that the unit of analysis lies in the past. Typically, approaches to gather the required information rely on historical descriptions of the sequences of events or factors that lead to the emergence of the cluster (for example in Pinch and Henry 1999), interviews with important

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actors (for example in Bresnahan et al. 2001) or survival analyzes of firms (for example in Klepper 2007). Yet, the dependence on limited information aggravates the analysis of the processes which actually have taken place. Another question also important for developing policy measures is whether the processes identified as being responsible for cluster emergence in the past are also of importance under the contemporary socio-economic regime. Due to these methodological difficulties, we encourage the application of a variety of methods to find out different patterns and processes which resulted in or prevented cluster emergence in different times and socio-economic contexts. The many open and wide questions which could be only partly outlined above and also the many different methodological and theoretical approaches must be considered as evidence for the novelty of the field. Further research, especially on the linkage between new clusters and established paths as well as on the generation of institutions and endogenous dynamics, clearly would be helpful to develop appropriate policy measures to adequately support cluster emergence. The many failed attempts to artificially create clusters highlight this necessity quite plainly. Against this background we explicitly encourage any further discussion, criticism and comments and go in accord with Braunerhjelm and Feldman (2006, 3) when stating that ‘there is simply too much at stake to be uncritical when our focus is long-term economic growth and when significant public funds are used to promote cluster formation activities’.

REFERENCES Armington, C. and Z.J. Acs (2002), ‘The Determinants of Regional Variation in New Firm Formation’, Regional Studies, 36 (1), 33–45. Arthur, W.B. (1994), Increasing Returns and Path Dependence in the Economy, Ann Arbor, MI: University of Michigan Press. Audretsch, D.B. and M.P. Feldman (1996), ‘Innovative Clusters and the Industry Life Cycle’, Review of Industrial Organization, 11 (2), 253–73. Bathelt, H. and J.S. Boggs (2003), ‘Towards a Reconceptualization of Regional Development Paths: Is Leipzig’s Media Cluster a Continuation of or a Rupture with the Past?’, Economic Geography, 79 (3), 265–93. Bathelt, H., A. Malmberg and P. Maskell (2004), ‘Clusters and Knowledge: Local Buzz, Global Pipelines and the Process of Knowledge Creation’, Progress in Human Geography, 28 (1), 31–56. Braunerhjelm, P. and M. Feldman (2006), Cluster Genesis. Technology-Based Industrial Development, Oxford, UK: Oxford University Press. Brenner, T. (2005), ‘Innovation and Cooperation during the Emergence of Local Industrial Clusters: An Empirical Study in Germany’, European Planning Studies, 13 (6), 921–38. Bresnahan, T., A. Gambardella and A. Saxenian (2001), ‘“Old Economy” Inputs

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for “New Economy” Outcomes: Cluster Formation in the New Silicon Valleys’, Industrial and Corporate Change, 10 (4), 835–60. Bünstorf, G. and S. Klepper (2009), ‘Heritage and Agglomeration: The Akron Tire Cluster Revisited’, Economic Journal, 119 (April), 705–33. Feldman, M.P. (2001), ‘The Entrepreneurial Event Revisited: Firm Formation in a Regional Context’, Industrial and Corporate Change, 10(4), 861–91. Feldman, M.P., J. Francis and J. Bercovitz (2005), ‘Creating a Cluster while Building a Firm: Entrepreneurs and the Formation of Industrial Clusters’, Regional Studies, 39 (1), 129–41. Frenken, K. and R.A. Boschma (2007), ‘A Theoretical Framework for Evolutionary Economic Geography: Industrial Dynamics and Urban Growth as a Branching Process’, Journal of Economic Geography, 7 (5), 635–49. Gordon, I.R. and P. McCann (2000), ‘Industrial Clusters: Complexes, Agglomeration and/or Social Networks’, Urban Studies, 37 (3), 513–32. Jacobs, J. (1969), The Economy of Cities, New York, US: Vintage Books. Harrison, B., M.R. Kelley and J. Gant (1996), ‘Innovative Firm Behavior and Local Milieu: Exploring the Intersection of Agglomeration, Firm Effects, and Technological Change’, Economic Geography, 72 (3), 233–58. Kenney, M. and U. von Burg (1999), ‘Technology, Entrepreneurship and Path Dependence: Industrial Clustering in Silicon Valley and Route 128’, Industrial and Corporate Change, 8 (1), 67–103. Klepper, S. (2007), ‘Disagreements, Spinoffs, and the Evolution of Detroit as the Capital of the US Automobile Industry’, Management Science, 54 (4), 616–31. Krugman, P. (1991), Geography and Trade, Cambridge, MA: MIT Press. Longhi, C. (1999), ‘Networks, Collective Learning and Technology Development in Innovative High Technology Regions: The Case of Sophia Antipolis’, Regional Studies, 33 (4), 333–42. Lorenzen, M. (2005), ‘Why do Clusters Change?’, European Urban and Regional Studies, 12 (3), 203–8. Malmberg, A. and Maskell, P. (2002), ‘The Elusive Concept of Localization Economies: Towards a Knowledge-based Theory of Spatial Clustering’, Environment and Planning A, 34 (3), 429–49. Malmberg, A. and Maskell, P. (2006), ‘Localized Learning Revisited’, Growth and Change, 37 (1), 1–18. Marshall, A. (1917), Industry and Trade, London: Macmillan. Martin, R. and P. Sunley (2003), ‘Deconstructing Clusters: Chaotic Concept or Policy Panacea?’, Journal of Economic Geography, 3 (1), 5–35. Martin, R. and P. Sunley (2006), ‘Path Dependence and Regional Economic Evolution’, Journal of Economic Geography, 6 (4), 395–437. Menzel, M.-P. and D. Fornahl (2005), ‘Unternehmensgründungen und regionale Cluster. Ein Stufenmodell mit quantitativen, qualitativen und systemischen Faktoren’, Zeitschrift für Wirtschaftsgeographie, 39 (3–4), 131–49. Orsenigo, L. (2001), ‘The (Failed) Development of a Biotechnology Cluster: The Case of Lombardy’, Small Business Economics, 17 (1–2), 77–92. Owen-Smith, J. and W.W. Powell (2004), ‘Knowledge Networks as Channels and Conduits: The Effects of Spillovers in the Boston Biotechnology Community’, Organization Science, 15 (1), 5–21. Owen-Smith, J. and W.W. Powell (2006), ‘Accounting for Emergence and Novelty in Boston and Bay Area Biotechnology’, in P. Braunerhjelm and M.P. Feldman

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(eds), Cluster Genesis. Technology-Based Industrial Development, New York: Oxford University Press, pp. 61–83. Pinch, S. and N. Henry (1999), ‘Paul Krugman’s Geographical Economics, Industrial Clustering and the British Motor Sport Industry’, Regional Studies, 33 (9), 815–27. Porter, M.E. (1998), ‘Clusters and the New Economics of Competition’, Harvard Business Review, 76 (6), 77–90. Romanelli, E. and M. Feldman (2006), ‘Anatomy of Cluster Development: Emergence and Convergence in the US Human Biotherapeutics, 1976–2003’, in P. Braunerhjelm and M. Feldman (eds), Cluster Genesis: Technology-Based Industrial Development, Oxford, UK: Oxford University Press, pp. 87–112. Saxenian, A. (1994), Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Cambridge, MA: Harvard University Press. Scott, A.J. (1988), ‘Flexible Production Systems and Regional Development: The Rise of New Industrial Spaces in North America and Western Europe’, International Journal of Urban and Regional Research, 12 (2), 171–85. Scott, A. (2006), ‘Origins and Growth of the Hollywood Motion-Picture Industry: The First Three Decades’, in P. Braunerhjelm and M. Feldman (eds), Cluster Genesis: Technology-Based Industrial Development, Oxford, UK: Oxford University Press, pp. 17–37. Storper, M. and R. Walker (1989), The Capitalist Imperative. Territory, Technology, and Industrial Growth, New York, US; Oxford, UK: Basil Blackwell. Torre, A. and A. Rallet (2005), ‘Proximity and Location’, Regional Studies, 39 (1), 47–59. Zucker, L., M. Darby and M. Brewer (1998), ‘Intellectual Capital and the Birth of U.S. Biotechnology Enterprises’, American Economic Review, 88 (1), 290–306.

PART I

Accidents, path dependency and strategic action

2.

Jacobian cluster emergence: wider insights from ‘green innovation’ convergence on a Schumpeterian ‘failure’ Philip Cooke

1

INTRODUCTION

As is well-known, for those interested in evolutionary economic geography, Schumpeter left almost no regional or spatial analysis of economic phenomena. From the evolutionary economic geography and policy viewpoints, this is clearly disappointing. His two brief allusions are highly time–space-specific. The first concerns Schumpeter’s fourth form of innovation, which is designated regional and exemplified by the process of ‘railroadization’ – the phenomenon by which US and other agricultural lands were opened up to markets by infrastructural investments, not only in railroads but farms, grain silos and even agricultural manuals that the railroad companies of the western USA had printed so that pioneers accessing cheap land on the plains would know how to farm that land. In Jutland, Denmark, 350 community schools were established to perform some of these and other functions. This ‘regional evolution’ of land and markets was, rightly, considered an externalized organizational innovation as compared with the internalized organizational innovation of a corporation adopting new management methods that gave it a, albeit temporary, competitive edge (Schumpeter, 1975; Andersen, 2007). The second allusion is even briefer where Schumpeter mentions innovation such as the department store only being feasible in the large city due to the level of demand required to sustain such an innovation. Hence the city is seen as having some economic specificity from its scale attributes, but Schumpeter says nothing about the dynamics of the entailed processes (Andersen, 1994, 2007). In this chapter it is argued that the rather ugly word ‘railroadization’ captures a crucial aspect of economic development from which generalizations

17

18

Emerging clusters

may be hypothesized. It is clearly a developmental ‘trigger’, by no means the only one, and it may become residual – even archaeological eventually. Nevertheless, railroads were emulated by other infrastructures with huge productivity contributions, notably the freeways in the US, regionalization of universities in many countries and, most recently, wireless broadband. Illustration of this pre-figurative theory of regional growth is offered by reference to recently identified processes of Jacobian cluster formation and emergence. Thus, two giants of economic evolution are put in harness for this task. The Jacobian dimension arises from a frequently observable cluster emergence consequent upon railroadization. What happens is that early clusters form in proximity to key network nodes or ‘hubs’. Every region that this author has explored, beginning with California, displays this emergent cluster formation, followed by cluster mutation, pathway. This is probably a chance effect but, as we shall see, it is nevertheless curious that Israel, Denmark and Wales (UK) all display this kind of cluster emergence process. Unfortunately, space does not permit the study of the fascinating case of Israel, whose ‘railroadization’ to all cities was only completed in 2007, when Be’er Sheva was connected. Almost immediately a green technology cluster, mainly focused on solar power and water conservation innovations, was identifiable, when it had not been before. The fact that it is associated with Israel’s Dimona nuclear facility Science Park may be a contributory factor to the former quietude amongst firms, but the new railway connection to nearby Be’er Sheva and its heightened academic interaction with, in particular, Tel Aviv, led to venture capital interest in forming a financial interest by Ben Gurion University of the Negev in Israel Cleantech Ventures, Israel’s first cleantech focused venture capital fund. Firms began to be put in better-networked interactive situations by the process of railroadization. Importantly, this also settles the dry and often unproductive debate about scale in cluster definition. Notions of ‘critical mass’ miss the key point of differentiation between a cluster and, say, an agglomeration, which is that firms in clusters interact, discuss, compete, co-operate and generally act as a group. Thus, as long as there are more than two interacting in some or other of these ways, including with any third parties like incubators or venture capitalists (two are a ‘couple’ and not a ‘group’), they constitute a (conceivably emergent) cluster. Otherwise, we get stuck in Zeno’s paradox of the bees – namely how many comprise a ‘heap’ or a ‘swarm’ in Schumpeter’s language. Our answer is three, where they are of one intention, namely seeking to create a new hive, usually because of overcrowding in the old one (Gould, 1992). Finally, the ‘discovery’ of cluster mutation was a by-product of new research into ‘green innovation’ (Cooke, 2008a). That is, in studying how clean technologies,

Jacobian cluster emergence

19

renewable energies and waste recycling innovations evolved it could easily be shown that entrepreneurs moved into ‘green technology’ from a nearby ICT, biotechnology, agro-food, oil-refining or nanotechnology type of cluster. It is, on reflection, an open research question whether such entrepreneurial migrants seek, like the bees, to escape overcrowding in their previous cluster. In what follows, the chapter first explores the meaning and implications of the theoretical perspective advanced. This involves attempting process definitions of railroadization, Jacobian cluster mutation, platform, and the relationship between the Schumpeterian and Jacobian elements of the theoretical framework. Thereafter, four empirical sub-sections ensue. These explore historical exemplars of the key processes under discussion. As noted, three of these involve cluster mutation from inter alia agro-food, agricultural and marine engineering, wireless telephony, information technology, biotechnology and energy clusters. To stress-test the underlying thesis, a non-cluster case is invoked from Norway, where large firm engagement in clean technology is pronounced. Interestingly, much of the intra-corporate production of silicon and other inputs has a high degree of geographical proximity of an intra-corporate kind. This, if in future accompanied by many more empirical illustrations, is suggestive of the importance of geographic proximity dominating even cognitive, intracorporate proximities, which are supposed to be placeless.

2

RELATING RAILROADS AND RELATED VARIETY

To continue, it is suggested that bemoaning Schumpeterian neglect of the spatial dimension may be misplaced. His category of innovation by railroadization helps in understanding regional innovation in which clusters ‘mutate’ through a Jacobian (after Jane Jacobs, 1969) process. This does not mimic the bees, dividing to escape, but rather indicates taking the opportunity to utilize the ‘related variety’ operating at the regional level in places like California, North Jutland (Denmark) and Wales (UK). Thus regional innovation through cluster mutation is illuminated by the interest of this chapter in ‘green’ innovation, which is pronounced in those regions. These are the only regions to have been examined from a ‘green innovation’ perspective thus far to this author’s knowledge.1 A possible reason for the illuminative aspect of taking a green perspective is that green innovation (such as the burgeoning cleantech industry) displays a high degree of innovation convergence across fields like information and communication technology (ICT), nanotechnology, biotechnology, agro-food, health,

20

Emerging clusters

environment, energy, production and materials management, and waste treatment. Thus innovation occurs laterally among distinctive parts of what may be described as an innovation platform. Other regions for which Jacobian clustering is probably true are those of the Third Italy, which has been studied from this perspective by Boschma and Lambooy (2002) also from an evolutionary economic geography viewpoint. They found that apparently different industrial districts displayed ‘related variety’ in their engineering competences and associated high lateral absorptive capacity towards innovations emanating from neighbouring industries and clusters. No claim is made here for the ubiquity of this process, on the contrary Jacobian cluster regions are probably not in the majority. But where they exist they can be propulsive in relation to national economies or aspects of them. To that extent they make a contribution to the understanding of regional and national unequal development between wealth and poverty, the issue that has animated economics since Adam Smith. They also constitute a particular type of explanation of cluster emergence, more satisfactory than idealizations such as ‘windows of opportunity’ that seem popular among many cluster emergence researchers. This is because the actual ‘mutation agents’, namely transmigrating entrepreneurs, can be identified, researched and their motivations investigated. It may reasonably be asked, since a new theorization of regional economic development is being proposed for the part of that complex field of study touched by the fascinating concept of ‘cluster emergence’, in what precise relationship do Jacobs and Schumpeter lie, intellectually speaking? It should be clear by now that the conceptual relationship tends to be ‘linear-interactive’. This means that the ‘opening-up’ of regional economic opportunity (Schumpeterian) is logically prior. Thereafter, for reasons discussed in detail in the empirical sections that follow, a cluster may emerge and once one has emerged it may divide or mutate into a new one or more over time. This species differentiation is, of course, predictable from an evolutionary as well as an evolutionary economic geographic perspective. Where numerous clusters co-exist in related variety and geographical proximity to each other we may speak of their form as that of a ‘platform’ of interrelated industries rather than the single clusters that may have preceded the platform historically. This theoretical explanation is ostensibly more satisfactory than the routine ‘window of opportunity’ account of cluster emergence. This is for three reasons. First, a possible hangover from evolutionary biology is the notion of ‘chance’ pronounced in the ‘window’ metaphor. For in human society, as Pasteur put it, ‘fortune favours the prepared mind’. Second, there seems no evident ‘agency’ as a result of that approach’s reliance upon a chance explanation, again disturbing from a human action perspective. Finally, there seems no possibility of ‘learning’

Jacobian cluster emergence

21

let alone ‘moulding’ the cluster outcome through social interaction or networking since, almost by definition, the particular chance opportunity is unrepeatable. Importantly, the Jacobian focus on ‘the city’ is relaxed completely in this analysis, which is interested more in regions. Jacobs’ analyses do not seem weakened by this scalar re-focusing. Having held out the promise of a neo-Schumpeterian theory of regional evolution, that aspiration has to be severely qualified. For a more truly evolutionary theory of spatial dynamics we have to turn to the midtwentieth century inheritors of Veblen’s concept of ‘cumulative causation’. A variant of the biblical ‘Matthew principle’ of ‘to those that have, more shall be given’ this profoundly disequilibrium perspective contains the missing dynamic element by virtue of Myrdal’s (1957) elaboration upon the various ‘backwash’ and ‘spread’ effects associated with regional evolution. Spread effects, on occasions, caused the dynamic element to seek to accommodate growth beyond its original boundaries. Backwash effects sucked back temporary gains made by competing locations to the larger, predominating accumulating entity, such as a strong city or regional economy. Observations of static relationships in the spatial evolution of the ‘knowledge economy’ have led to the preliminary postulation of a knowledge capabilities theory of regional evolution based on the distinctive distribution of two key components of the knowledge economy labour market (Cooke, 2007). Foremost here are, first, the knowledge-intensive business services (KIBS) such as finance, research, media, software and so on, while second, high technology manufacturing is a mainstay of the knowledge economy in computer and communications hardware, aerospace and biotechnology inter alia. Empirical observation of the static picture for the EU strongly suggested an urban–regional split between the locations of these. The former predominate particularly in primate cities (such as the major financial centre, sometimes, but not always, combining capital city administrative functions); the latter predominate in specialized satellite towns, often with appropriate knowledge centres like national research institutes or universities centred in them. This theory, in brief, is consistent with Myrdal–Hirschman2 theses about ‘cumulative causation’ and metropolitan regional concentrations of knowledge economy activities (Cooke, 2002). But as noted, the static picture merely hinted at the dynamism explicit in the idea of cumulative causation, which remained to be tested. The first such contemporary test was accomplished by access to and analysis of special runs of Israeli data in a dynamic perspective (Cooke and Schwartz, 2008). This chapter relies on those findings and then explores innovation outside primate cities where knowledge-intensive business services (KIBS) thrive to explore innovation at some distance from big cities altogether. Nevertheless Myrdal–Hirschman models

22

Emerging clusters

postulate innovation as capable of occurring there because such cities tend not to localize high technology manufacturing (HTM). To that we would add that they do not tend to have functional regional innovation systems and they are often the home of specialized rather than related variety clusters. The next sections take these insights and exemplify this by reference to some ‘cumulative causation’ peculiarities of innovative industry regions. Those selected display innovative convergence among high technology sectors to contribute to cleaner manufacturing, food and energy production – the so-called cleantech sectors, respectively (Cooke, 2008b). We might, writing from another perspective, wish to explore the phenomenon of cluster-emergence of a different kind from that investigated here. That would involve locational shift from possibly high rent urban spaces to satellite locations within reach of KIBS and other services but offering more affordable labour and land rents.

3

REGIONAL INNOVATION SYSTEMS: INTEGRATING REGIONAL NETWORKS AND REGIONAL INNOVATION POLICY

The enthusiasm for studying networks arose in a context of manifest decline in the co-ordinating capabilities of states and markets regarding leading edge research and innovation, which subsequent data (for example Chesbrough, 2003) shows set in from approximately 1991. But if the central state had become as debilitated as many large private corporations were to become regarding the lack of productivity from their large budgetary allocations to research and development (R&D), the ‘regional state’ seemed, from empirical reportage of the kind discussed above, to be on the rise. A parallel strand of research had evolved, which focused on regional innovation policy. Thus the connecting concept of regional innovation systems (RIS) evolved from this even earlier thinking about ‘regional innovation policy’, in relation to ‘regional innovation networks’ (the ‘systems view of planning’ intruding again). This happened in two publications, the more widely-cited one being less theoretically and empirically rich than the almost totally uncited one. The difference between Cooke (1992) and (1993) lies in the absence of any bibliographical influence from the ‘innovation systems’ literature in the 1992 paper, which thus has purer lineaments to economic geography. Contrariwise, the 1993 paper shows the author had by then read both Lundvall’s (1988) contribution on ‘innovation as an interactive process’ and Dosi et al. (1988) and was also influenced by Johansson (1991) and Grabher (1991) in probably the first proper book

Jacobian cluster emergence

23

on regional development from a ‘network regions’ perspective (Bergman, Maier and Tödtling, 1991). It seemed necessary to place these distinctive ‘network and policy’ concepts in relation to each other in a layered model. So, the innovation policy dimension evolved conceptually into the idea of a sub-system supporting with knowledge and resources the innovative firms in their networks. These formed a ‘superstructural’ sub-system dealing with actual innovation ‘near market’. As we have seen, they had been spoken of as carrying out ‘networking’ with each other, not only laterally in alliances or partnerships and vertically in sometimes partly localized supply chains but also with the innovation policy and knowledge generation sub-system (Meyer-Krahmer, 1990; Cooke, Alaez and Etxebarria, 1991; Malecki, 1991; Rothwell and Dodgson 1991). So these also had sub-system characteristics related to the governance of innovation support. Each sub-system was also seen to interact with global, national and other regional innovation actors, and even through technological or sectoral systems of innovation. Open systems ruled. Over the years the RIS framework has been analysed in terms of many different ‘varieties of innovation’ relating to localized, networked and hierarchical innovation ‘governance’ systems. Third Italy, BadenWürttemberg and French innovative regions exemplified each, respectively. Correspondingly, the ‘exploitation’ sub-system of firms, in the main, could be dominated by large firms or oligopolies – even foreign ones as with the Asian transplants to Wales in the 1980s and 1990s. Other regions, like Catalonia, had a mix of large (SEAT) and SME ‘district’-type innovation relations, while other places might have innovation regimes in which only small, entrepreneurial firms predominated, as in places with observable ‘industrial districts’, not only Third Italy but also some newer technology clusters. Later still, these more entrepreneurial SME systems, living by venture capital and exploitation of public research from universities, could be differentiated further as ‘entrepreneurial’ (ERIS), market-led systems, compared with those, especially in Europe, where they were more ‘institutional’ (IRIS) where state support was pronounced and entrepreneurship was less advanced (Cooke, 2004).

4

RECENT ADVANCES IN RIS RESEARCH

One of the most interesting research areas opened up in RIS research in the recent past concerns, once again, the insights of Jane Jacobs (1969) and can be referred to as addressing the challenging issue of ‘cluster emergence’. In particular by examining the emergence of a number of ‘green clusters’ on a

24

Emerging clusters

regional canvas, we see emphasis in ‘green innovation’ upon technological convergence among diverse industries. These include biotechnology, information technology and nanotechnology (but not limited to these hightech activities) and among them we also see a process of cluster ‘species mutation’. Of particular fascination here is that some regions have the capability relatively rapidly to mutate many ‘Jacobian’ clusters – so-called because although different they display evolutionary characteristics of ‘related variety’ (Frenken et al., 2007). A clear definition is called for here to denote this new concept. The key is the evolutionary concept of variety, whereby some new combinations of entrepreneurial and innovative opportunity might present themselves in geographically proximate space. This would arise from the mixture of knowledge spillovers and rather high absorptive capacity among neighbouring economic activities. Hence (Jacobian) variety is both a context and an ‘evolutionary fuel’ for cluster emergence as long as there is not too much cognitive dissonance or distance between neighbouring economic activities. So, as suggested earlier, Jacobian clusters emerge from new combinations of knowledge cross-fertilising among, for example, high-technology activities like biotechnology and information technology or medium ones like agro-food that may be foundations for a new clean technology cluster that adopts and adapts elements from each. Although we noted above that a different kind of cluster emergence might arise from lower rent-seeking practices by firms moving to geographically proximate locations outside cities, it shares with this ‘Jacobian’ model a ‘cumulative causation’ inheritance. However, while the Jacobian model is positively cumulative, the rentseeking model is, initially at least, the product of negative externalities of cumulative causation in the ‘mother city’. An important caveat regarding the meaning of related variety arises from this research. It is normally taken to mean firms in neighbouring NACE categories. However, for example, new combinations from agro-food and automotive industries that are historically not that close in technical let alone NACE terms may also arise if the new combination being sought concerns biodiesel or bioethanol. This is because adjustments in breeding of plants may have to be made if negative effects on engine performance cannot be made by the automotive side of the equation. Hence related variety is not fixed to sectoral relatedness but embodies also particular and contextuated technological convergences. In that respect it is much harder to predict cross-fertilization in the latter than the former case. The solution to this is yet another ‘after the fact’ type analysis where such unexpected interaction can be referred to as ‘revealed related variety’. But anyway, Jacobian variety rests not within but among the clusters according to this line of reasoning. This means the ‘Jacobian’ dimension is both a potentiality and

Jacobian cluster emergence

25

Clean Technology Biotechnology Wireless ICT Agro-Food Wine Film

Figure 2.1

California’s Jacobian clusters

(empirically) a product of its emergence. Moreover, as noted, it is likely to occur in the relative geographical proximity of regions. In what follows, empirical evidence is provided of regional evolution through innovation of differing intensities ‘mutating’ through processes of knowledge search and selection that happen to give rise to successive clustering phenomena in regional ‘platforms’ of related economic variety. Jacobian Clusters One such region is Northern California whose ICT, biotechnology and clean technology clusters overlap in proximity to San Francisco but also near various agro-food clusters like wine in the Napa, Sonoma and Russian River valleys and varieties of horticulture in the San Joaquin and Sacramento river valleys (see Figure 2.1). But notice, Figure 2.1

26

Emerging clusters

also shows Southern California having prominent Jacobian clusters in Los Angeles and San Diego (Cooke, 2008a). The content of Figure 2.1 is drawn entirely from secondary evidence supplied by the numerous studies of clusters in California as published in Saxenian (1994), Porter (1998), Simard and West (2003), Guthman (2005), Scott (2006) and Cooke (2007). North Jutland in Denmark is another such region, as apparently is Wales in the UK, as we shall see. North Jutland’s economy is the global centre of the wind turbine production industry whose profile and evolutionary trajectory was a key beneficiary from the outset of varieties of innovation. As will be shown, this recently ‘discovered’ cluster has all the required characteristics to warrant the cluster designation, conjoining university research at, for example, Ålborg and Århus Universities, the Danish Technological Institute (DTI) also at Århus, and both spin-out firms and larger, indigenously established firms that are involved in ‘green innovation’. Denmark’s ‘cluster’ has no geographical specificity of the kind Porter (1998) was rather more sensitive towards. He referred there to a cluster as: ‘a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalties and complementarities’. With regard to such clusters the most important analytical task is to establish the extent of interconnections, commonalities and complementarities since this is what distinguishes a localized cluster, its specialization or differentiation and its potential for exploiting knowledge spillovers for competitive advantage. In the research to be reported below, the Danish Wind Energy Association database was accessed and the details mapped by location and categorized according to point in the supply chain. Thus final assemblers were differentiated from major module suppliers (for example fibreglass blade manufacturers) and general components suppliers from them and services and logistics suppliers. Some 50 of the 70 members were found to be located in geographic proximity in Jutland, mostly in the more northerly part. Of considerable interest here is Denmark’s political commitment since 1970 to wind energy and what research reveals to be North Jutland region’s wind-turbine cluster has to be addressed. On this, Andersen et al. (2006) point to the wind energy industry having passed through an early phase characterized by numerous small and medium-sized enterprises (SMEs) producing domestically-scaled wind power for individual farms and householders. But latterly, especially since the government subsidy to domestic consumers was removed in 2000, exports have risen, the scale of equipment has increased tenfold and sea power from large-scale offshore wind farms has come to predominate. As wind turbines have only some ten years’ life expectancy, most early wind turbines in rural Denmark will

Jacobian cluster emergence

27

soon disappear if they have not already done so. So the current industry structure is large Danish (Vestas) or foreign (Siemens, Gamesa, Suzlon) producers and a supply platform of SMEs. There may be less local sourcing of key equipment like gearboxes than in the early days when North Jutland shipbuilding firms could adapt to meet the nascent wind energy demand. However, the scale and adaptability of German heavy engineering in cranes and related equipment means they now supply the Danish wind energy input market. Services and special logistics firms, the latter capable of transporting the now typically massive fibreglass turbine blades also exist in proximity as do a great many components suppliers (Figure 2.2). It is worth noting that the emergence of this cluster was closely associated with the triumph of Jutland’s three-blade solution over California’s two-blade effort. Jutland’s superior model was path-dependent on marine and agricultural engineering (ship propeller and plough) while California’s was based on propeller-driven aeroplane technology. The fact the latter faced upwind while the former faced downwind added to Californian windmill blade inferiority. Stoerring (2007) agrees with this evolutionary profile pointing out that scale was also partly induced in the early 1980s by the huge demand for wind turbines from the US and more particularly California. Then, in the late 1980s this market collapsed because California’s state administration removed its subsidy regime and the Reagan administration cut alternative energy research budgets. At this time many US turbines malfunctioned badly and even the superior Danish three-blade design was prone to breakdowns. Thereafter, the industry recovered as demand in European and Asian markets rose. Nowadays (Figure 2.2) around half the global production capacity is accounted for by Danish firms like world leader Vestas Wind Systems of Randers, near Århus (acquirer of Danish firms NEG-Micon; Nordtank; Wind World) and Siemens (Bonus) at Brande and Ålborg. Gamesa Wind Engineering, Spain’s largest producer of turbines is at Silkeborg, Jutland. Suzlon, India’s leader, is located at Århus. LM Glasfiber of Lunderskov near Århus in Jutland is the leading supplier of fibreglass wind turbine blades. The other members of the North Jutland cluster are in Figure 2.2. Of the Danish Wind Industry Association’s 70 members, 50 are in Jutland, mostly northcentral Jutland. More is said on the etymology of this ‘green cluster’ evolution in the final section of this chapter. Universities (AV) join DTI (see Table 2.1) as a knowledge generation sub-system of the RIS. As noted earlier, overlapping this substantial and globally leading wind turbine technology cluster is the main Danish solar thermal energy cluster (Figure 2.3). This is smaller in scope but consists of largely indigenous firms and their suppliers. These involve firms in two types of supply chain as follows:

28

Emerging clusters

Siemens Ålborg A U

S

Randers L Vestas

S

S Suzlon

Gamesa Siemens

Vest-Fiber L

S S LMGlasfiber L

Key:

Source:

S S

Århus

DOT

J&U

BSB M BSB9

D T I

L

A U

Reichhold S

L

Fiberline

Manufacturer

Materials

Services

Logistics

Components

Danish Wind Industry Association statistics.

Figure 2.2

The north-central Jutland wind turbine cluster

Jacobian cluster emergence

Nordvestjysk Folkecenter for Vedvarende Energi

NIRAS

Energi- og Miljødata ARCON Solvarme A/S Michael Madsen & Petersen PlanEnergi Rambøll A/S, Svendborg Djurs Solvarme I/S Ajdt Miljø A/S Cowi Consult Poul Lodberg

Grundfos Sensor

Viessmann A/S

ED Heating ApS Fyens Solvarme Danfoss A/S Esbensen Sol-Energi

Source:

Composed from ESTIF data.

Figure 2.3 1.

2.

North Jutland’s solar thermal energy cluster

Glazed (roofs) ● Solar collectors ● Flat plate collectors (a) Glass (b) Heat absorbent copper/aluminium (c) Coatings, paint (d) Pipes welded to absorber plate ● Vacuum collectors (a) Parallel glass tubes (b) Absorber (c) Transfer pipes (d) Vacuum is insulator Unglazed (swimming pools) long tubes ● Synthetic absorbent material ● Hydraulics in pool filtration system ● Heat storage and back-up heating ● Plumbing and installation

29

30

Emerging clusters

Biotechnology

Electronics/IT Informatics Telecommunication

Figure 2.4

Clinical/ Hospital

Biomedical Technology

Jacobian cluster emergence in North Jutland

Finally, exemplifying North Jutland’s Jacobian cluster profile it is worth considering Figures 2.4 and 2.5, the first of which reveals established cluster evolution in the shape of the NorCom wireless communications cluster at Ålborg and the possibly emergent and overlapping biomedical technology cluster in close proximity (Stoerring, 2007). Here, the longestablished wireless telecommunications cluster (Stoerring and Dalum, 2007) has given rise to possible cluster mutation by interaction with the healthcare activities associated with clinical trials and testing of biomedical equipment. Many of these activities are closely associated with science and technology commercialization through academic entrepreneurship at Ålborg University. In Figure 2.5 the most prominent (though many have yet to be fully researched) of North Jutland’s Jacobian clusters are shown which are characterized as emergent clusters or established ones by their ‘related variety’ characteristics in relation to each other. This is made clear in Table 2.1, which shows the stylized history of a significant part of the Jutland economy’s evolution since it was radically transformed by nineteenth century railroadization as proposed by Schumpeter (1975). This process created certain path dependences or developmental trajectories. This kind of analysis is rather important and useful in explaining the ontology of such regional economies and their clusterization. Recall that for Schumpeter ‘railroadization’ was the purest, most radical kind of innovation based upon the creative destruction of a preceding state of nature (or at least non-farming economy). The massive ‘entrepreneurial event’ of ‘railroadization’ creates evolutionary trajectories that act as constrained opportunity sets for regional evolution. Activities displaying ‘related variety’ to the originating entrepreneurial event comprise the selected trajectories as in Table 2.1. These may foster varying intensities of

Jacobian cluster emergence

31 Clean Tech Biotechnology Wireless Agro-Food (Organ.) Agro-Food (Conv.) Furniture Fashion Engineering (Fish) Engineering (Pipes)

Figure 2.5

Table 2.1

North Jutland’s Jacobian clusters and related variety

Jacobian cluster path dependences

Technology

Path dependence

Clean technology

Agricultural and marine engineering (for example wind turbine blades replicate plough and propeller design) Wireless ICT and medical technology Ship-to-shore marine technology ‘Railroadization’ of undeveloped land in Jutland

Biotechnology Wireless telephony Agro-food (conventional, intensive) Organic food Furniture Fashion clothing Fish equipment and pipework engineering

Reaction against conventional intensive food production in Jutland (mostly dairy) ‘Railroadization’, craft schools and the local forestry tradition Women’s craft schools skilling farmer’s wives Fishing and marine engineering

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Emerging clusters

innovation, from disruptive, which cheapens (for example mobile telephony) an existing but specialized, uncommoditized technology (for example ship-to-shore radio), to incremental innovations around mobile telephony (first-, second-, third-generation and so on mobile telephony). There is insufficient space to offer a satisfying explanation for the Jacobian cluster mutation process in North Jutland but Kristensen (1992) underlines ‘railroadization’ as a key process where Jutland as a whole was opened up on a smaller scale but with similar inspiration to that of the Frontier West in nineteenth century USA. With this came two key movements. The first was the farmer’s co-operative movement where farmers supplied their own production and household needs, including banks. The second movement was the craft schools, established in over 350 centres, followed by the still flourishing Danish Technological Institutes from 1907. Together these made a form of social or collective entrepreneurship possible, that is, infrastructure, education, technical support, finance and markets. Hence ‘social capital’ remains an important dimension of the SME-based collective entrepreneurship of North Jutland. It makes technological branching by means of related variety evolution possible. Finally, this is assisted by the existence of an RIS infrastructure of technological institutes, technical and craft schools and universities, which sustains entrepreneurship and localized knowledge transfer.

5

BIOENERGY FROM CROPS IN WALES

One of the most surprising, perhaps, but unquestionably innovative developments in the bioenergy field has occurred in recent years in Wales. This case, to a greater extent than the others even, tends to show related variety and platform effects may occur in rural regions as well as more heavilypopulated ones. Descriptively speaking it involves patented knowledge derived by the Institute for Grassland & Environmental Research (IGER) based at Aberystwyth in rural, central Wales. This UK Biological Research Council-funded research institute has, for 70 years to 2007, been the UK’s main, specialist grassland research institute. It was tasked from the outset with improving the quality of fodder for cattle and sheep feedstock, which is mainly grass. By the early 1980s research, which involved not simply breeding richer grasses but understanding the rumen of these ruminative animals, had revealed that a limit to quality on these mountain-bred animals occurred because the enzymes that broke down fodder into protein were actually consuming a significant portion of the nutritional value of the fodder consumed by the animal. Following many years of lengthy field trials and laboratory research, cross-breeding the basic rye-

Jacobian cluster emergence

33

grass commonly utilized for cattle and sheep fodder with breeds possessing enhanced sugar content produced optimal results. The enzymes took some of the enhanced sugar content, transforming it directly into energy but left a substantial portion for the animal sufficient for the amount, nutritional value and flavour of the animal to be significantly enhanced. This came to the market at a time when consumer demand for leaner meat of the type raised in mountainous areas rose significantly and continuous improvement to the original AberDart strain of rye-grass, marketed by Germinal Holdings, over the intervening years led to it reaching 50 per cent of the UK market. It further secured the status of Welsh Black beef and Welsh lamb as premium products and enabled significant improvements to occur in comparable upland cattle breeds such as Aberdeen Angus. In 2003, it was realized that IGER had, in the form of these SugarGrasses, an indigenous product to add to its burgeoning portfolio of biofuels. Tests had shown that SugarGrass had twice the calorific value of sugar cane, the source of much of the world’s biofuel. IGER thus evolved a second string to its grassland expertise by developing a renewables research division. One of the biofuel feedstocks in which it became supreme early on was the growing and processing of Miscanthus, more popularly known as Elephant Grass, an Asian tall grass that grows on marginal land. Accordingly it does not compete for land with food crops, one of the criticisms of the US and Europe’s ‘bolt for biofuels’. This has seen the ears and cobs of wheat and corn being turned into ethanol because of easy availability and major subsidy, causing up to 40 per cent increases in the price of such cereals, and grief in developing country food markets. Tellingly, IGER is widely perceived as in a global class of its own in these specific bioenergy subfields, the official view being that maybe University of California, Berkeley, may become competitive now they have received a $500 million endowment for a Climate Change research institute from British Petroleum (BP). The University of Illinois is also mentioned as a possible future competitor, but these are the only two and IGER has a current lead on both of them. But in any case, SugarGrass is also twice as calorific as Miscanthus and SugarGrass is thus favoured as the technology with the best long-term prospect to replace oil. IGER has the patent for SugarGrass, currently earning royalties of £100 000 per year from sales of seed varieties for fodder. But as the world awakens to the relatively simple processes of biorefining the product, these are likely to grow substantially – so much so that agreement has been reached with Welsh Government officials about the promise of funds to help build an experimental biorefinery. Thinking had gone as far as to speculate that when oil ceases to be refined at the huge Milford Haven refineries in neighbouring Pembrokeshire, the pool of talent and infrastructural sunk costs would

34

Emerging clusters PHOTOVOLTAICS CLUSTER Royce Renewables PJB Systems Sharp Solar, Dulas; PV Systems; Corus Colours, ICP Solar, Jantec Solar, IQE VE Heating Bright Light Solar

LlaniSolar

Sunset Solar

Solar Housing

Sundance Renewables Thermonax SB Alternative Micaul Solarfit Energy Solar ICP Solar Solarfit G24i Eco Energy InterSolar Systems KDUK Clear Sky

Figure 2.6

Solar energy equipment manufacturers in Wales

make them ideal candidates for becoming SugarGrass (and Miscanthus) biorefineries. These would continue to meet a huge share of the UK’s future energy. But it is not simply a spin-out-venture capital model that is in mind, possibly because a spin-out model does not yet work as well as a commercialization outsourcing model in this nascent field. For example, Molecular Nature, the key spin-out of IGER, burnt-up its venture capital, but because of the value of its patent for biofuels potential as well as its fodder market, it was acquired by spin-in company Summit. Moreover, true to the traditions of co-operation among Welsh mountain farmers, IGER promotes a new vision of mixed farming whereby groups of farmers grow Miscanthus on their poorest soil, devote some fields for SugarGrass fuel cropping and raise quality Welsh lamb or Welsh Black beef on their best SugarGrass land. Photovoltaics produce solar thermal energy as in North Jutland. In Wales, this has been studied by authors (Hendry et al., 2001) comparing the broader opto-electronics cluster, which also specializes in fibreoptic cabling, with those such as that associated with Carl Zeiss in Jena, eastern Germany. However, in relation to this present discussion about ‘green clusters’, it is the photovoltaics capability that comes to the fore. Figure

Jacobian cluster emergence

35

2.6 reveals the presence of sub-divisions of multinationals such as Japanese electronics corporation Sharp whose Sharp Solar subsidiary is based at St Asaph alongside Corus Colours, a subsidiary of Corus, the UK–Dutch steel manufacturer, acquired in 2007 by Indian giant Tata Steel. Utilizing polymer science and surface treatments Corus Colours has innovated radically a Solar Paint product capable of generating solar energy, especially from prefabricated steel buildings. Other firms in the photovoltaics cluster at St Asaph are indigenous, such as Cardiff-headquartered microprocessor firm IQE and ‘green engineering’ firm Dulas, headquartered in mid-Wales. Hence, in conclusion, we see that numerous indications of clustering among small firms, but also some large firms, along with an applied and basic research infrastructure characterizes important locations of ‘green clusters’ mainly, in this analysis, focused upon the production of nonfossil fuel energy that contributes to the moderation of global warming. A key feature to be discussed in the concluding section of this chapter is that in some cases there is an element of cluster ‘species’ multiplication which, from an evolutionary economic geography perspective can readily be hypothesized. As shown in Figure 2.1, the California cleantech clusters are to be found in juxtaposition to the ICT and biotechnology, food and wine clusters of the San Francisco region of northern California and the wireless telecom and biotechnology clusters of San Diego in southern California. Indeed, so-called cleantech is widely seen as arising from the combination of biotechnology (including biopolymers and biofuels), ICT (sensors) and nanotechnology (catalysts and filtration membranes). However, while agro-food is also one of California’s key industries, agrofood path dependence seems even more pronounced in the cases of Jutland and Wales, as we have seen, while in yet another case forestry is important to Sweden’s biofuels cluster in Örnsköldsvik (Cooke, 2007).

6

RELATED VARIETY BY OTHER MEANS: CLEANTECH IN NORWAY

The Norwegian model of developing green innovation usually involves large organizations evolving towards green innovation from intracorporate related variety. Perhaps Norway’s greatest strength in green energy is Carbon Capture and Storage (CCS). In 2007 the Norwegian government and Statoil made an agreement to establish a full-scale CO2 capture and storage project at Mongstad (near Bergen, Hordaland). To limit technical and financial risks the project will progress in two stages. The first stage covers the Mongstad CO2 capture testing facility which will be operational at the same time as the cogeneration plant starts operation

36

Emerging clusters

in 2010. The testing facility/pilot plant will have the capacity to capture at least 100 000 tonnes of CO2 per year. The second stage involves full-scale capturing of approximately 1.5 million tonnes of CO2 per year and will be in place by the end of 2014. The technology development phase of the project is currently progressing according to the project execution plan. The main objective for the pilot is to develop more cost-effective technology for CO2 capture for a wider international application, that is to develop, test, verify and demonstrate technology that would allow construction of full-scale CO2 capture plants with reduced costs and reduced technical and financial risks. A technology company will be set up to construct and operate the capture pilot, CO2 Test Centre Mongstad. The government is currently in the process of inviting companies to participate in the technology company. The invited companies are potential users of CO2 technologies and the aim is to establish a group of participants in May 2007. Several technological solutions will be tested in parallel in the project. This approach should ensure that technological developments in Norway could have broad international relevance. With the Mongstad CCS project we move from the research/small-scale phase to actual construction of a full scale CO2 capture facility. Another larger firm with a leading position in Norway’s solar energy industry is REC. This firm is the largest silicon foundry for photovoltaics in the world. The company has three divisions: first, REC is the world’s largest dedicated producer of silicon materials for photovoltaic applications and holds all rights to its proprietary production technology. Solar grade silicon produced by REC can be used in the production of both mono and multicrystalline wafers, as well as wafers based on ribbon technologies. REC is also the world’s largest producer of monosilane gas which, in addition to being used internally by REC to make solar grade silicon, can be used by others in all types of thin-film silicon applications. REC is also the world’s largest producer of multicrystalline wafers, with a history of rapid business expansion and introduction of leading production management techniques to increase productivity. REC combines high quality manufacturing equipment with proprietary technologies to achieve high productivity. Third, REC Solar’s cell and module facilities are among the most automated plants in Europe, and REC is currently developing new technology to strengthen its competitiveness and ensure future growth. The facilities are focused on few products and customers, allowing a lean approach to production. REC’s main production centres are at Sandvika and Porsgrunn in southern Norway (near Oslo) and Narvik and Glomfjord in the north. In each case a significant number of specialist suppliers are located nearby.

Jacobian cluster emergence

7

37

CONCLUSIONS AND THEORETICAL IMPLICATIONS

By virtue of an examination of the emergence of green clusters, often involving the production of new forms of non-fossil fuel energy aimed at lessening of overall greenhouse gas (GHG) emissions derived from human economic activity, a curious feature of economic evolution has been revealed. The clue lies in the element of convergence that characterizes green innovation. As hinted at in the cases of northern and southern California, not studied in detail here but examined elsewhere (Cooke, 2007), the type of ‘cleantech’ industry emerging in the clustered form described by Burtis et al. (2004, 2006) evolves from agro-food, ICT and biotechnology. In North Jutland we see something comparable having occurred. Thus the wind turbine and solar thermal clusters are found in the more agricultural and marine engineering regions of Denmark. In writing the history of the former industry, Jørgensen and Karnøe (1995) and Karnøe and Jørgensen (1996) note how the Danish design of wind turbines defeated the main global competitor from where a significant renewable technology demand also arose simultaneously from the 1970s, namely California. As noted, Danish wind turbine blade design was influenced by the agricultural engineering industry, notably the design of modern ploughing equipment. In the experimental innovation phase when some 30 firms engaged in the design of prototype turbine blades, knowledge spillovers from the design of propellers by marine engineers in the Jutland shipbuilding industry were also absorbed. This resulted in a three-blade solution and the idea that the greater efficiency in the operation of such blades came from pointing them into the wind. California’s aeronautics tradition, by the 1970s predominantly relying on jet propulsion, led to the recovery of historic knowledge of propeller-driven aeroplanes. This suggested a two-blade solution pointing downwind. The Danish solution proved far superior to the Californian in this technological contest. Hence in these multi-cluster locations, it is clear that a good deal of technological convergence is possible and probably necessary. But, interestingly, comparable technological assets do not necessarily produce optimum solutions from such Schumpeterian ‘new combinations’. Nevertheless, it is clear that in some regions cluster forms can evolve quite readily from other cluster forms, the cluster ‘species’ multiplication giving the region more of a cluster ‘platform’ characteristic to its industrial organization. On further inspection, both California and Jutland prove to have spawned many clusters. In the former case, wine clusters overlap the horticultural zones, Hollywood’s film cluster is well-known and Porter (1998) also profiles other, sometimes highly specialized clusters

38

Emerging clusters

such as the alloy golf club cluster at Carlsbad in the southern Californian desert. Further inspection of the cluster history of Jutland reveals the detailed cases of Salling (furniture) and Ikast (clothing), the even more closely studied NorCom wireless telephony cluster at Ålborg (Stoerring and Dalum, 2007), the emergent BioMedico cluster also at Ålborg, and as yet unexamined cluster candidates in insulated pipework near Ålborg, and fish-processing equipment near Skagen, at Jutland’s northern tip. At Barritskov, East Jutland is the estate that sustains the Årstiderne Organic Food Network, a co-operative retail network that delivers 30 000 boxes per week of organic food throughout Denmark. It could also be argued that there is a high degree of knowledge transfer from varieties of agricultural production to bioenergy production in Wales leading to possibly nascent cluster-formation, but also from glass technology to fibre-optic cables and then photovoltaics by a different route into renewable energy in a multi-functional opto-electronics cluster. Species multiplication or mutation of this kind would be perfectly consistent with an underlying theory of evolutionary economic geography, especially that part referring to the opportunities for innovation and growth arising where there is related variety among industries. Absorptive capacity for adaptation to new combinations based on easily understood knowledge spillovers would be the mechanism by which such species multiplication is explained, as the case of Jutland’s wind turbine technology illustrates especially clearly. In other cases focusing upon ‘green innovation’ cluster specialization as ascribed to Marshall–Arrow–Romer (MAR) thinking seems on the face of it to be more convincing than the idea of Jacobian clustering (after Jane Jacobs’ notion of innovation through variety). Yet even where limited clustering occurs, as in Rhineland or Brazil, previously existing industries such as the coal, steel and chemicals super-clusters of the Ruhr Valley or the sugar producing industry in Brazil are suggestive of the presence of important spillovers from knowledge of filtration and ventilation in the former and fermentation in the latter cases that were of profound importance to the evolution of new, convergent combinations of innovative products and processes. This tends to confirm clearly the widespread and common sense policy experience that clusters cannot be easily built in vacuo but may find it a less rigorous evolutionary trajectory to emergence where the regional context gives opportunities for Schumpeterian ‘new combinations’ from regionalized ‘related variety’. Where such related variety is more attenuated, as perhaps with biofuels in Brazil or NE England, fewer ‘Jacobian clusters’ emerge. However, that is not the whole of the explanation for Jacobian cluster mutation, rather it is an important contextual factor as noted, for example, in the work of Cantwell and Iammarino (2003). Other key features that

Jacobian cluster emergence

39

may be hypothesized, but further research is needed, is that Jacobian clustering benefits from other more social, institutional and organizational assets, such as those listed below, in addition to more economic assets concerning related variety, knowledge spillovers and high lateral absorptive capacity: ● ● ● ● ● ●

Social capital; Collective entrepreneurship; Technological branching (‘new combinations’ opportunities); Peripherality (perceived distance from key governance core); Infant industry subsidy; Innovation system – regional research and technological institutes, universities, regional innovation platform policy and funding.

The key concluding point of this section is that, for the first time in regard to new industries, we see replication of processes that have historically underpinned successful regional economies that once spawned many traditional industrial districts or clusters. Evolutionists like Klepper (2002), for example, would also highlight the transfer of routines from one to another industry by means of ‘mobility of talent’, as in the cases of the US, German and Italian automotive and engineering industries (see also Boschma and Wenting, 2007). Probably the key findings of this contribution in relation to evolutionary theory are the following. First, while Schumpeter had little to say about regional innovation, his concept of innovation by ‘railroadization’ proves to be highly apposite as an explanation of at least the case of Denmark’s opening up of North Jutland and elsewhere in the west in the nineteenth century and its modern evolution into an arena of Jacobian clustering in related variety industries. Second, the green perspective has somehow thrown the evolution of this kind of industry organization into clearer perspective because it focuses on a horizontal and convergent technology ‘platform concept’ rather than a more traditional industrial economics perspective that emphasizes vertical structures like sectors or clusters. Third, regarding cluster emergence within a regional innovation systems context the research reported showed the importance of social capital – which even in California may be considered strong, as the work of Saxenian (1994) on Silicon Valley showed – as an evolutionary driver of certain kinds of regional innovation system. Indeed, whether as ‘bonding’ or more institiutional ‘bridging’ social capital it is the key element of the hidden power of networks, both social and institutional, that has always been at the heart of the RIS approach to evolutionary science. Finally, it could be seen that the evolutionary processes described were capable of hosting differing intensities of ‘innovative bursts’. Railroadization itself

40

Emerging clusters

was said by Schumpeter to be the most radical kind. Divergent, possibly disruptive, innovations like the semiconductor industry in California and mobile telephony infrastructure in North Jutland cheapened and ‘democratized’ key technologies based upon new knowledge combinations. That other types of cluster-emergence can evolve, as around larger corporate interests in Norway, is beyond dispute and a different cluster biography from the dominant ‘mutation’ model discussed in this chapter must be composed. In the main cases discussed here, incremental, narrowly path-dependent innovation can evolve among cluster firms in proximity. History also shows there may be punctuated evolution with the more radical innovations around biotechnology from cancer-defeating therapeutics to fodder-based biofuels as knowledge evolves and broader economy regimes, notably those associated with the chemicalization of fossil fuels, approach exhaustion and make way for a potentially cleaner bioeconomy regime.

NOTES 1. Subsequently, Israel’s cleantech clusters were examined and found to be similarly convergent with agro-food, ICT and biotechnology. As noted, Israel’s new cluster at Be’er Sheva in the Negev actually coincides with the recent completion of the railway connection from Tel Aviv to that desert location (Cooke 2008c). 2. The Myrdal–Hirschman theory of economic development has been influential in the emergence of ‘new economic geography’ (for example Krugman, 2001). Anticipating the latter’s solution to the neoclassical location theory impasse by positing ‘increasing returns to scale’ rather than the rubric of ‘constant returns’ thus demonstrating the growth of cities to be a function of spatial monopoly, Myrdal (1957) proposed spatial development to be characterized by ‘cumulative causation’ with associated ‘spread’ and ‘backwash’ effects. This implies increasing returns to scale (through ‘backwash’) and developmental ‘spread’ to other nearby areas. Hirschman’s (1958) elaboration on this was that ‘spread’ would be driven by the innovative capacity of competing technology users. Under ‘knowledge economy’ conditions we hypothesize that, over relatively short time periods, primate cities grow through increasing returns (to knowledge) and ‘satellites’ of leading technology innovators ‘spread’ nearby. Our preliminary static pictures of EU NUTS 2 regions are consistent with this, while our dynamic picture of spatial divergence in Israel 1995–2002 (Cooke and Schwartz, 2008) is consistent with Myrdal– Hirschman rather than Krugman (2001), who himself admits his ‘two-locations competing’ models are misleadingly simplistic. In this respect, it can be argued, evolutionary economic geography trumps ‘new economic geography’.

REFERENCES Andersen, E. (1994) Evolutionary Economics: Post-Schumpeterian Contributions, London, Pinter. Andersen, E. (2007) Schumpeter’s Evolution, Ålborg, Ålborg University.

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Andersen, P., Borup, M. and Olesen, M. (2006) Innovation in energy technologies, Risø Energy Report, 5, 21–7 Bergman, E., Maier, G. and Tödtling, F. (eds) (1991) Regions Reconsidered: Economic Networks, Innovation and Local Development in Industrialized Countries, London, Mansell. Boschma, R. and Lambooy, J. (2002) Knowledge, market structure, and economic coordination: dynamics of industrial districts, Growth and Change, 33, 291–311. Boschma, R. and Wenting, R. (2007) The spatial evolution of the British automobile industry: does location matter? Industrial and Corporate Change, 16, 213–38. Burtis, P., Epstein, R. and Hwang, R. (2004) Creating the California Cleantech Cluster, San Francisco, Natural Resources Defence Association. Burtis, P., Epstein, R. and Parker, N. (2006) Creating Cleantech Clusters, San Francisco, Natural Resources Defence Association. Cantwell, J. and Iammarino, S. (2003) Multinational Corporations and European Regional Systems of Innovation, London, Routledge. Chesbrough, H. (2003) Open Innovation, Boston, Harvard Business School Press. Cooke, P. (1992) Regional innovation systems: competitive regulation in the new Europe, Geoforum, 23, 365–82. Cooke, P. (1993) Regional innovation systems: an evaluation of six European cases, in P. Getimis and G. Kafkalas (eds) Urban and Regional Development in the New Europe, Athens, Topos. Cooke, P. (2002) Knowledge Economies, London, Routledge. Cooke, P. (2004) Introduction: regional innovation systems – an evolutionary approach, in Cooke, P., Heidenreich, M. and Braczyk, H. (eds), Regional Innovation Systems, London, Routledge. Cooke, P. (2007) Growth Cultures: the Global Bioeconomy and its Bioregions, London, Routledge. Cooke, P. (2008a) Regional innovation systems, clean technology and Jacobian cluster-platform policies, Regional Science Policy and Practice, 1, 9–30. Cooke, P. (2008b) Cleantech and an analysis of the platform nature of life sciences: further reflections upon platform policies, European Planning Studies, 16, 375–94. Cooke, P. (2008c) Green innovation and regional development, Presentation to Regional Science Association Meeting, Be’er Sheva, Israel, April 16. Cooke, P. and Schwartz, D. (2008) Regional knowledge economy variations: an EU–Israel comparison, Tijdschrift Voor Ekonomische en Sociale Geographie, 99, 178–92. Cooke, P., Alaez, R. and Etxebarria, G. (1991) Regional technological centres in the Basque country: an evaluation of policies, providers and user perceptions, Regional Industrial Research Report No. 9, Cardiff University. Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (eds) (1988) Technical Change and Economic Theory, London, Pinter. Frenken, K., Van Oort, F. and Verburg, T. (2007) Related variety, unrelated variety and regional economic growth, Regional Studies, 41, 685–97. Grabher, G. (1991) Building cathedrals in the desert: new patterns of co-operation between large and small firms in the coal, iron and steel complex of the German Ruhr area, in E. Bergman, G. Maier and F. Tödtling (eds) op cit. Gould, J. (1982) Why do honey bees have dialects? Behavioural Ecology and Sociobiology, 10, 53–6.

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Guthman, J. (2005) Agrarian Dreams: the Paradox of Organic Farming in California, Berkeley, University of California Press. Hendry, C., Brown, J., Ganter, H.-D. and Hilland, S. (2001) Industry Clusters as a location for technology transfer and innovation: the case of opto-electronics’, Industry and Higher Education, 15, 33–41. Hirschman, A. (1958) The Strategy of Economic Development, New Haven, Yale University Press. Jacobs, J. (1969) The Economy of Cities, New York, Vintage. Johansson, B. (1991) Economic networks and self-organization, in E. Bergman, G. Maier and F. Tödtling (eds) op cit. Jørgensen, U. and Karnøe, P. (1995) The Danish wind turbine story: technical solutions to political visions, in A. Rip, T. Misa and J. Schot (eds) Managing Technology in Society: the Approach of Constructive Technology Management, London, Pinter. Karnøe, P. and Jorgensen, U. (1996) The International Position and Development of the Danish Wind Turbine Industry, Copenhagen, AKF. Klepper, S. (2002) Capabilities of new firms and the evolution of the US automobile industry, Industrial and Corporate Change, 11, 645–66. Kristensen, P. (1992) Industrial districts in West Jutland, Denmark, in F. Pyke and W. Sengenberger (eds) Industrial Districts and Local Economic Development, Geneva, International Institute for Labour Studies. Krugman, P. (2001) Where in the world is the ‘new economic geography’?, in G. Clark, M. Feldman and M. Gertler (eds) The Oxford Handbook of Economic Geography, Oxford, Oxford University Press. Lundvall, B. (1988) Innovation as an interactive process, in G. Dosi et al. (eds) op cit. Malecki, E. (1991) Technology and Economic Development, London, Longman. Meyer-Krahmer, F. (1990) Science and Technology in the Federal Republic of Germany, London, Longman. Myrdal, G. (1957) Economic Theory and Underdeveloped Regions, London, Duckworth. Porter, M. (1998) On Competition, Boston, Harvard Business School Press. Rothwell, R. and Dodgson, M. (1991) Regional technology policies: the development of regional technology transfer infrastructures, in J. Brotchie (ed.) Cities of the 21st Century, London, Longman. Saxenian, A. (1994) Regional Advantage, Cambridge, Harvard University Press. Schumpeter, J. (1975) Capitalism, Socialism and Democracy, New York, Harper. Scott, A. (2006) Spatial and organizational patterns of labour markets in industrial clusters: the case of Hollywood, in B. Asheim, P. Cooke and R. Martin (eds) Clusters and Regional Development: Critical Reflections and Explorations, London, Routledge. Simard, C. and West, J. (2003) The role of founder ties in the formation of San Diego’s ‘Wireless Valley’, Paper to DRUID Summer Conference 2003; Creating, Sharing and Transferring Knowledge: the Role of Geography, Organizations and Institutions, Copenhagen, June 12–14. Stoerring, D. (2007) Emergence and Growth of High Technology Clusters, PhD Thesis, Dept. of Business Studies, Ålborg University. Stoerring, D. and Dalum, B. (2007) Cluster emergence: a comparative study of two cases in North Jutland, Denmark, in P. Cooke and D. Schwartz (eds) Creative Regions: Technology, Culture and Knowledge Entrepreneurship, London, Routledge.

3.

Economic policy and its impact on the evolution of clusters and spatial systems exemplified by German TV programme production Ansgar Dorenkamp and Ivo Mossig

1

INTRODUCTION

When news emerged throughout German media in November 2008 that the private broadcasting company Sat.1 intended to give up its location in Berlin and relocate its business to Munich in order to reduce costs (Spiegel Online 2008), this news provoked different political echoes. While Bavarian politicians interpreted the company’s plans as a proof of Bavaria’s economic attractiveness, Berlin’s governing mayor Klaus Wowereit said that such a decision was unacceptable. This comment was justified by the fact that the federal state of Berlin had supported the Sat.1 company before by providing investment grants. These financial aids were granted on condition that Sat.1 was ready to guarantee to stay in Berlin and maintain jobs until 2012. In this context Berlin’s Minister of Economic Affairs Harald Wolf announced that he would reclaim these grants if the company did not give the binding promise to preserve jobs in Berlin (Morgenpost Online 2008). Two months later it was noted that Sat.1, starting from January 2009, would continue to employ 114 of formerly 350 employees in Berlin in spite of relocating to Munich. Capital investment grants like those paid to Sat.1 in Berlin rank among governmental incentives. By granting these incentives political authorities try to influence the behaviour of companies in favour of specific locations (Schätzl 1994, 46 ff.). Schätzl (1994, 13) calls this deliberate promotion of certain locations ‘location policies’ (Standortpolitik). Location policy aims at stimulating economic growth and employment by politically supporting existing enterprises or business start-ups. Furthermore, it creates incentives for business units to relocate to a certain place (Meyer-Stamer 1999a, 1; 1999b, 11). Efforts of location policy can be seen in conjunction

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Emerging clusters

with the political support of clusters, if the efforts of location policy aim at encouraging the development of spatial concentrations and especially of the ideal types of cluster characteristics (Hospers and Beugelsdijk 2002, 383; Fromhold-Eisebith and Eisebith 2005, 1252). The paramount objective of cluster promotion is, ultimately, an increase in the competitiveness of regional economic systems and therefore of economic growth in a regional perspective (Blien and Maier 2008, 2; Fromhold-Eisebith and Eisebith 2008, 81). If corresponding supportive measures are taken or organized by political authorities, these endeavours are called ‘cluster policies’ (Clusterpolitik) (Kiese 2008a, 130). Meanwhile, political efforts directed towards the economic development in a regional perspective by using the cluster concept are being made all over Europe and all over the world (Ahedo 2004, 1097; Burfitt et al. 2007, 1273; Bathelt and Dewald 2008, 163). Cluster policy is understood as a specific kind of ‘industrial policy’ (Industriepolitik) targeted at supporting regional economic characteristics (Kiese 2008a, 130). This industrial policy includes characteristics of science policy, technology policy and regional development policy (Hospers 2005, 383; Hospers et al. 2008, 5). Industrial policy is at the same time an important part of the government’s ‘economic policy’ (Wirtschaftspolitik) (von Einem 1991, 17). In general, there exists a strong link between state and politics. The state is called the organizational form of political issues (Schultze 2005, 944). Consequently, the state represents the arena that embodies the entire ensembles of institutions in which political decisions are made by political officials (Gellner and Glatzmeier 2004, 18). Thus the state can be regarded as the specific and institutionalized context in which politics are taking place (Gellner and Glatzmeier 2004, 19). All state-run activities are thus prepared and carried out by political activities and decisions. Cluster policy, representing a regionally-oriented special case of industrial policy, also turns out to be part of state-run measures of economic policy.1 The term ‘economic policy’ describes every kind of intentional influence exerted by public agencies and aiming at shaping the economy and its basic conditions (Luckenbach 2000, 1). Koch et al. (2008, 4 ff.) divide economic policy into three classes, namely ‘system policy’ (Ordnungspolitik), ‘adjustment policy’ (Prozesspolitik) and ‘structural policy’ (Strukturpolitik). Measures of cluster policy are assigned to structural policy, which aims at facilitating economic adaptation processes of sectors and regions. Governmental incentives like subsidies and investment grants are called direct measures of structural policy (Koch et al. 2008, 5). They are designed to shape entrepreneurial decisions in various ways. The same applies to measures of adjustment policy, which summarizes, for instance, decisions on monetary policy, fiscal policy and exchange rate policy (for example the

Clusters and spatial systems in German TV production

45

increase or cut in interest rates and direct taxes). Adjustment policy also often causes entrepreneurial modifications (Donges and Freytag 2004, 269; Welfens 2008, 489). However, the most extensive political influence on entrepreneurial activities is exercised by national system policy. National system policy aims at shaping the judicial and institutional arrangement of national economic systems, in Germany designed as social market economy (soziale Marktwirtschaft) (Wildmann 2007, 5). The constitution and arrangement of economic systems therefore means the setting of fairly long-term targeted binding rules and norms, which define the range of entrepreneurial activities and in this way normally restrict them (Welfens 2008, 489). However, the relationship between system policy and adjustment policy is a hierarchical one, characterized by the fact that measures of adjustment policy may only be carried out if the free-market system is sustained (Donges and Freytag 2004, 267). Even though economists disagree about the necessity, intensity and scale of economic policy interventions, these kinds of governmental interference are not unusual. In fact in Germany they have always been practiced. They concern industrial companies, but increasingly business services. On the one hand these remarks point at the important role of measures of cluster policy as a specific mode of efforts of economic policy. On the other hand they show that measures of cluster policy are less significant than the meaning of measures of adjustment policy and especially system policy in shaping entrepreneurial performance and consequent spatial behaviour. Although measures of system policy predominantly aim at the national level and are therefore not restricted to the regional level, they nevertheless can have an effect on the regional level. This is why Kiese (2008a, 130 f.) highlights the cluster-supporting role of even those staterun measures which do not explicitly aim at cluster promotion. For this reason it seems to be appropriate not to confine discussions about the conception, design, application and evaluation of political measures and their spatial effects to the regional level by using the label of ‘cluster policy’, as done in many recent publications (for example Hospers and Beugelsdijk 2002; Raines 2002; Hospers 2005; Burfitt et al. 2007; Alecke et al. 2008; Hegedüs 2008; Hospers et al. 2008; Aziz and Norhashim 2008; Bathelt and Dewald 2008; Burfitt and MacNeill 2008; Falck et al. 2008; Kiese 2008a; 2008b; Mans et al. 2008). We rather think that it is reasonable to basically analyse how national system policy, adjustment policy or structural policy can affect the course and the rules of the emergence and evolution of clusters and sectoral spatial concentrations. Due to the ‘primacy of system policy’ (Donges and Freytag 2004, 269), especially the decisions of system policy seem to be appropriate for analysing the spatial effects of national economic policy. Besides this setting of priorities it will be discussed in

46

Emerging clusters

this chapter how this process can be influenced by measures of structural policy aiming at the promotion of certain locations (location policy). The sectoral context for analysing these problems is represented by German broadcasting activities, especially by activities dealing with the production of TV programmes (called ‘TV industry’ in the following). German broadcasting, comprising sound broadcasting and television broadcasting, is characterized by strong interference of system policy, occurring in intense measures of regulation policy2 in all broadcasting markets. Furthermore, since the 1970s especially Germany’s federal states (Bundesländer) have focused their interests and activities with regard to structural policy on the TV industry. Closely related efforts of locational policy for attracting TV companies are based upon the positive effects of growth and employment that demonstrably occurred in Munich and Cologne (Hoffmann-Riem 1986, 14; Nünning 2003, 54; Mossig 2006, 113 ff.). For this reason politicians in Germany’s federal states have regarded the TV industry as an effective instrument for restructuring regional economic landscapes and transforming the industrial society into a ‘knowledge society’ (Sydow and Staber 2002, 221; Freundt 2003, 91 ff.; Mai 2005, 61). The analysis of the decisions of structural policy in the shape of measures of a federal state’s locational policy also seems to be interesting against the background that Germany’s federal system may lead to strong competition between federal states for attracting promising industries. This can exert an influence on the evolution of clusters and spatial systems. The chapter is structured as follows. According to theoretical principles, we argue in section 2 how clusters and spatial systems emerge in newly originating industries assuming that there is free market competition and no interference on the part of economic policy. On the basis of these findings we will show how the emergence and evolution of clusters and spatial systems can be shaped by measures of system policy and structural policy. In section 3 the current spatial pattern of Germany’s TV industry is presented. In section 4, the theoretical explanations will be taken up and tested as an example by analysing the evolution of Germany’s TV industry and its spatial pattern. In section 5 we come to a conclusion by summarizing the findings and pointing out the need for additional research in economic geography.

2

THEORETICAL FRAMEWORK: THE EVOLUTION OF CLUSTERS AND SPATIAL SYSTEMS AND THE SIGNIFICANCE OF ECONOMIC POLICY

In order to understand how decisions of economic policy influence processes of cluster formation and the emergence of spatial systems we present

Clusters and spatial systems in German TV production

47

a concept for explaining underlying processes in newly originating industries, while assuming the absence of measures on the part of economic policy. We use an evolutionary perspective concerning random events, presuming that the emergence and evolution of industrial spatial systems is mainly influenced by the action of companies and their organizational and technological abilities and routines. Thus they can create path dependency that may lead to a customary mode of regional economic development. Afterwards German broadcasting will serve as an example to show how these processes can be shaped by the evolution of system policy and structural policy and their respective measures. In their study about spatial clustering processes Storper and Walker (1989) argue on the assumption of free market forces and unfettered competition. They do not consider state-run market interventions. According to them, the first pioneer enterprises in new lines of business play a decisive role at the beginning of cluster formation because they decide about the place for locating their business units. The location is not predetermined, but the pioneer enterprise rather has some degree of free choice of localization (‘windows of locational opportunity’, ibid.). It is true that some urbanization and localization economies can have an influence on localization decisions (Boschma and Wenting 2005, 4 ff.), but the concrete localization decision of a pioneer business is mainly based on the founder’s individual circumstances and is for this reason also shaped by chance (Boschma and Lambooy 1999, 414; Mossig 2008). New lines of business are normally not opened up by multiple pioneer enterprises. In fact, emerging markets are at first entered by one pioneer who settles in a location. This first enterprise is called ‘market pioneer’ (Lieberman and Montgomery 1988; Robinson 1988; Min et al. 2006), or ‘first mover’ (for example Kerin et al. 1992; Koh 1993; Robinson et al. 1994; VanderWerf and Mahon 1997). In free market economies the first mover is able to gain some advantages. Literature calls them ‘market pioneer advantages’ (Robinson and Fornell 1985), ‘pioneer advantages’ (Bohlmann et al. 2002) or more familiarly ‘first-mover advantages’ (for example Lieberman and Montgomery 1988, 1998; Kerin et al. 1992; Robinson et al. 1994; Frynas et al. 2006; Min et al. 2006; also: Dorenkamp 2008, 63 ff.). The concept of ‘first-mover advantage’ shows how a first mover can benefit from pioneering in multiple ways and therefore capitalize on these advantages as soon as the following enterprises enter the market and break the first mover’s temporary monopoly. Altogether, the market pioneer’s numerous opportunities of realizing first-mover advantages cause barriers to market entry for followers since followers face higher costs and greater challenges than the market pioneer (Lieberman and Montgomery 1988, 43 ff.; Agarwal and Gort 2001, 162 ff.). But

48

Emerging clusters

followers do not face insurmountable barriers to entry, they are rather able to gain advantages, too (‘later entrant advantages’, Kerin et al. 1992, 46; ‘late-mover advantages’, Shankar et al. 1998; ‘second-mover advantages’, Hoppe and Lehmann-Grube 2001), whose realization might lead to ‘pioneer disadvantages’ (Bohlmann et al. 2002, 1176) or more familiarly ‘first-mover disadvantages’ (Lieberman and Montgomery 1988, 47, 1998; Robinson et al. 1994, 18; Min et al. 2006, 17). Therefore, first-mover advantages never occur automatically by entering a new market as the first enterprise. In fact, market pioneers only have the opportunity to realize first-mover advantages by the time their monopoly is broken. This does not mean that market pioneers possess better skills than their followers (Robinson et al. 1994, 12). The market pioneers will only be able to gain lasting advantages if they possess organizational routines that meet the challenges of the company’s environment in the best possible way, and enable them to realize the maximum of the potential first-mover advantages (Dorenkamp 2008, 67 f.). To what extent the market pioneers are able to benefit from these opportunities mainly depends on their own skills and less on the skills of the followers. However, if one takes a look at the development of the long-term business performance of market pioneers, it becomes obvious that market pioneers tend to achieve better results than the following enterprises. For example, numerous studies indicate that market pioneers possess a ‘market share advantage’ (Robinson 1988) and can generate long-term and higher market shares than the followers (for example Robinson and Fornell 1985; Robinson 1988; Urban et al. 1986; Kerin et al. 1992; Kalyanaram and Urban 1992; Huff and Robinson 1994), but this interrelationship does not exist inevitably (Frynas et al. 2006). However, it is assumed that first-mover advantages outweigh first-mover disadvantages (Robinson et al. 1994, 18). These facts are of considerable importance for the development of locations and clusters because the market pioneer represents the first enterprise on a particular market. According to Storper and Walker (1989, 70 ff.), the pioneer starts the industrial localization of incipient industrial activities by finding a location. In the course of such an industrial evolution competitive advantages by internal and external economies of scale will arise in the location that possesses enterprises with high market shares (and these are usually the market pioneers, see above). Thus, the spatial choice for following businesses will become dramatically smaller. Prospering businesses can realize economies of scale by vertical integration and exert a pull on employees and suppliers. This means that processes of agglomeration can be reinforced simply by the dominant size of this single enterprise (Storper and Walker 1989 78; Bathelt 1991, 363; Mossig 2000, 42). If externally

Clusters and spatial systems in German TV production

49

interwoven production complexes evolve (for this see Storper and Walker 1989, 79 ff.; Bathelt 1991, 363 f.; Bathelt and Glückler 2002, 209), the successful enterprise also acts as the unit that initiates the demand for products and services. Linkages of vertical and horizontal interdependence emerge while the increasing degree of interconnection heightens processes of concentration by enlarging local potentials for supply and marketing. Owing to their dynamic growth, these regions attract more and more mobile production factors like employees and capital from other regions (Kulke 2004, 118 ff.). Connected to these processes, the initial demand coming from the successful enterprise creates space for the forming of new enterprises at the location by setting incentives for the foundation or relocation of new firms. This will happen by firms moving in from other locations or by endogenous processes. If the number of firms exceeds a specific ‘critical mass’ (Witt 1997, 768; Brenner and Fornahl 2003, 137), positive agglomeration effects arise. These agglomeration effects determine the development of cluster-specific advantages, which in turn strengthen processes of clustering (Boschma and Wenting 2005, 5). In this way the market pioneer is able to achieve regional leadership which can be the basis for subsequent processes of cluster formation. Endogenous processes are of especially great importance for the formation of clusters. This is related to the multiplying effects of successful organizational routines by firm-specific reproduction intensities which appear in spin-off-processes (Klepper 2002, 662 ff.; Boschma and Frenken 2003, 186 ff.; 2006, 278 f.; Boschma and Wenting 2005, 2; Dorenkamp and Mossig 2006, 290 ff.; Buenstorf 2007, 4). Accordingly, various processes of clustering at different places are determined by the quality of organizational routines that are passed on by reproduction processes (Dorenkamp 2008, 69 ff.). This process is driven by entrepreneurial competition for the best organizational routines. Pioneer enterprises that possess very robust routines can sustain their position in the market and reproduce their successful routines via spin-off-processes to following businesses. These enterprises are called ‘incubators’ because by multiplying routines in a regional context they create clustering paths that can also be reinforced by spun-off enterprises. By this means the ‘incubator’ creates a local ‘seedbed’ if corresponding opportunities and space for the foundation of new firms exist locally (Hayter 1997). Due to the specific success of the pioneers that possess efficacious routines, the prospering seedbed is created especially by spin-off-processes that arise from these kinds of successfully organized firms. By this means sustainable processes of clustering can be launched, because spin-off enterprises locate their production units by reason of the founder’s personal connections to the particular region usually in close proximity to the incubator (Boschma and Lambooy 1999, 417; Mossig

50

Emerging clusters

2000, 52; May et al. 2001, 374; Boschma and Frenken 2003, 187; 2006, 292; Boschma and Wenting 2005, 4). If, however, an enterprise does not have appropriate organizational routines, it will not sustain its position on the market and will therefore fail to encourage sustainable regional reproduction processes by creating seedbeds. Consequently, such an enterprise will not be able to initiate successful clustering processes. These are the mechanisms leading to selective clustering as mentioned by Storper and Walker (1989). Altogether these remarks show that with regard to new industries the region in which the market pioneer is located has better conditions for successful clustering processes than the region where followers have settled. This is because market pioneers tend to have bigger chances of gaining a dominant market position because of the opportunities to realize firstmover advantages. Furthermore, they have more time and options available for developing successful and effective organizational routines which can be augmented in a regional context by spin-off-processes and at the same time, together with those new firms that are founded in or relocate to the same location, exceed the critical mass which itself leads to selfenergizing processes of clustering (Dorenkamp 2008, 67 ff.). It is true that the inconsistent interconnection between first entering a new market and the certainty of such a firm’s durable market shares shows that there are no predetermined results. This means that primarily the enterprises themselves exert influence on their successful business performance by using their routines. But in this regard the initial conditions for the market pioneer should be better than for the following companies. This is the reason why first-mover advantages will tend to develop into regional first-mover advantages. This means that the conditions for successful cluster formation are better at the market pioneer’s location, while it seems more probable that the processes of cluster formation will start later or progress less successfully at the location of the companies that follow later. In reality, these ideal courses of processes of spatial concentration in new industries are often influenced by measures of system policy (Shaffer 1995; Frynas et al. 2006). These measures can have a key influence on a company’s performance and have to be considered as a determining factor in business competition. In this regard, public authorities of system policy have a number of options for interfering in economic processes. Spatial effects especially arise from decisions in regulation policy. These regulating decisions of system policy are carried out if powerful natural monopolies exist. In this case regulation decisions prevail by the regulation of market patterns, which provides for the vertical splitting of upstream and downstream markets (Knieps 2007, 153 ff.; 2008, 79 ff.).

Clusters and spatial systems in German TV production

51

This can be observed in the German telecommunications and electricity supply sectors. Furthermore, regulating decisions of system policy manifest themselves by constraining market entry and market exit for the regulated businesses concerned (Agarwal and Gort 2001; Welfens 2008, 489). In this case framework regulations of system policy can protect market pioneers or even give them a kind of monopoly and therefore exclude prospective followers from market entry by establishing market entry barriers. At the same time the market pioneer may gain an additional first-mover advantage by being given the best geographical location or the best marketing channels. These market entry barriers created by decisions of regulation policy are extraordinarily effective because they artificially extend the market pioneers’ temporary monopoly beyond the normal dimensions prevailing under free market forces and allow them to expand their first-mover advantages over a rather long period and thus underpin their regional leadership in an extraordinary way. This can be the basis for subsequent processes concerning the establishment or relocation of firms, of firm founding, relocating and spin-off measures. These remarks especially apply to the German broadcasting business. Because of its specific characteristics the broadcasting business has been one of Germany’s highest regulated sectors of the economy up to now (Heinrich 2002, 83; Puppis 2007, 88). In German broadcasting measures of system policy mainly occur by decisions of media or broadcasting policy (Heinrich 2002, 74). While media policy comprises all kinds of activities ‘that aim at the creation and enforcement of generally binding rules and decisions concerning media organizations and public mass-media communications’ (Puppis 2007, 36), broadcasting policy deals with organizing and developing public communication inside broadcasting as a mass medium (Donges 2002, 39). In general, German media policy is mainly shaped by broadcasting policy (Jarren 2007, 135). Media policy forms public communications by regulatory means like law-making (Vowe 2007, 78). General principles of broadcasting regulation that constitute the basis for decisions in media policy are reflected in the Basic Constitutional Law, the inter-state treaty on broadcasting, the federal broadcasting laws, and in the legislation and jurisdiction of the European Union (Heinrich 2002, 85). The rulings of the Federal Constitutional Court are of great additional importance. Germany’s media policy is mainly based on historical experiences during World War II. The central aim is to avoid totalitarian control over the media again (Vowe 2007, 76 f.). Therefore the Federal Constitutional Court has specified the task of broadcasting. Broadcasting has to allow for the consumers’ freedom to form their own opinions. That is why diversity of opinion has to be presented as extensively as possible. At the same time broadcasting

52

Emerging clusters

has to be kept free from any direct influence and control on the part of the state and is to be protected from any control and exertion of influence on the part of a broadcasting monopolist (Heinrich 2002, 85). This is to ensure that the consumers’ freedom to form their own opinion remains protected (ibid., 86). Thus, the main objective of regulation based on system policy is the promotion of the public interest (Francis 1993, 1 f.). In particular, socio-political considerations necessitate the regulation of broadcasting. Mass-media are of great social and cultural importance because they bring information to the public and thus contribute to the process of the population’s formation of opinion (Beck 2005, 56). As a forum for political debates they assume an important role for the successful functioning of democratic systems (Puppis 2007, 82 f.). From an economic perspective the avoidance of market failure, the combating of the monopolistic abuse of power and of cutthroat competition are also of public interest (Heinrich 2001, 75; 2002, 83). Market failure occurs in media markets because media contents are public goods. Other reasons for market failure in media markets are the accumulation of external effects on media coverage and on consuming media contents, the structural problems of competition, the lack of transparency regarding media coverage (informational defects) and blurred or warped preferences of consumers (‘merit goods’) (Puppis 2007, 67 ff.). Altogether it becomes clear that media goods are not only economic but also cultural goods (ibid., 82 f.). The media have to deal with the conflicting aims of being true to their public mission and of maximizing profits. That is why economic competition cannot ensure the provision of media contents of great variety and of high quality. If there is a social desire for these media contents, media regulation can promote the production of this kind of goods. Freedom from a monopolistic abuse of power and the guarantee of the good quality of radio and TV programmes was first realized in Germany by the decision of broadcasting policy not to tolerate private broadcasters but rather install broadcasting corporations under public law (öffentlichrechtliche Rundfunkanstalt). These corporations under public law were given a specific mission concerning their programmes. Private broadcasters were debarred from market entry until 1984 and afterwards controlled by specific agencies of supervision, the so-called federal media institutions (Landesmedienanstalten), which can decide on the admittance of private broadcasters within the scope of licensing processes (Heinrich 2002, 84). Due to a federal state’s responsibility for broadcasting questions, each German federal state has such an agency at its disposal. In the course of licensing processes each federal state possessed a number of options for starting measures of structural policy. These options existed because

Clusters and spatial systems in German TV production

53

Germany’s federal states, or rather the federal media institutions, were in control of the powerful resource ‘licence’ and were thus able to make demands concerning the choice of location on private broadcasters that applied for such a licence. Between the foundation of the first broadcasting corporation under public law and the admittance of the first private broadcaster lay a period of more than 30 years, in which the broadcasting corporations under public law were monopolistic market pioneers that were protected by the government (Voelzkow 2002, 141). These explanations show that the formation and development of the television industry took place under the strong influence of system and structural policy. This is why the TV industry represents an appropriate line of business for analysing how processes of industrial location and selective clustering (Storper and Walker 1989) were shaped by measures of national system and structural policy. With reference to these findings, the following analysis will examine how pioneering broadcasting corporations under public law settled down in their locations. At the same time it will be analysed to what extent these market pioneers under public law were able to convert their monopolistic regional leadership into regional first-mover advantages by acting as incubators and thus creating seedbeds for subsequent processes of cluster formation. The role and influence of location policy in finding business locations for private broadcasters and in shaping processes of clustering will also be scrutinized. Altogether it will be investigated how decisions and influences of system policy and structural policy led to the localization of television companies and therefore initiated and strengthened processes of selective clustering, which led to the evolution of the spatial pattern of Germany’s TV industry today. First, the current spatial pattern of Germany’s TV industry is presented in the next section.

3

THE SPATIAL PATTERN OF GERMANY’S TV INDUSTRY, 2003

First, Figure 3.1 shows the spatial concentration of television production units in Germany in 2003. The figure reveals that most of the broadcasters’ revenues are earned in the cities of Cologne, Munich, Mainz, Berlin and Hamburg. The financially strongest location, Cologne, is home to Germany’s most important private broadcaster, Radio Television Luxemburg (RTL), as well as the broadcaster under public law, West German Broadcasting (Westdeutscher Rundfunk, WDR), and the private broadcasters VOX, SUPER RTL, VIVA and N-TV. The TV-related incomes in the second-best location, Munich, are mostly generated by

54

Emerging clusters

SchleswigHolstein Kiel MecklenburgVorpommern NDR

Schwerin

Hamburg Bremen RB

Niedersachsen

RBB

Berlin Hannover

MTV

Potsdam

Magdeburg Sat. 1

Sachsen-Anhalt

VIVA SUPER n-tv RTL

Brandenburg

Nordrhein-Westfalen Bochum

VOX

Düsseldorf

MDR

Dortmund

Leipzig

Kassel

WDR

Dresden

Köln

Erfurt

Hürth

Thüringen

Hessen

RTL

Sachsen

SWR

Wiesbaden

RheinlandPfalz

Frankfurt

Mainz

Revenues/Year

ZDF

Saarland

4 Bn SR

Bayern Saarbrücken

2 Bn RTL II SWR

1 Bn

SWR

Baden Baden

0.5 Bn

Stuttgart PRO 7

Ismaning

BadenWürttemberg

München 9Live N 24

0

Source:

50

0.1 Bn

BR

100 km

Unterföhring Grünwald Premiere

TV-production firm, TV-studio operator

DSF Kabel1

Outline: A. Dorenkamp Cartography: B. Goecke

Dorenkamp and Mossig (2006, 294).

Figure 3.1

Spatial concentration of the TV industry in Germany (2003)

Clusters and spatial systems in German TV production

55

three broadcasters belonging to the private ProSiebenSat.1 Media AG (ProSieben, Kabel1 and N24). The broadcasting corporation under public law Bavarian Broadcasting (Bayerischer Rundfunk, BR), is also very important, as are the private broadcasters Radio Television Luxemburg 2 (RTL II) and smaller channels like German Sports TV (Deutsches Sportfernsehen, DSF) and 9Live. Europe’s biggest broadcaster, Second German Television (Zweites Deutsches Fernsehen, ZDF), is situated at the financially third strongest location, Mainz, and earns three-quarters of the location’s TV income. This broadcaster under public law is followed by another one, Southwest Broadcasting (Südwestrundfunk, SWR), which operates a broadcasting channel in Mainz.3 Mainz is followed by Berlin, which houses the private broadcaster Sat.1, the broadcaster under public law, Broadcasting BerlinBrandenburg (Rundfunk Berlin-Brandenburg, RBB), and also MTV; and Hamburg, where the North German Broadcasting (Norddeutscher Rundfunk, NDR) has its seat. In Cologne, Munich, Berlin and Hamburg private telecasting production units, services and distributors have settled in direct neighbourhood to the broadcasters. With 103 production services Munich is the most important place (Munich: 70; Grünwald, Ismaning, Unterföhring: 33), followed by Berlin with 94 units (Berlin: 70; Potsdam: 20), Cologne with 73 units (63 in Cologne; 10 in Hürth) and Hamburg with 34 units. These figures show that successful clustering processes took place in Cologne, Munich, Hamburg and Berlin. Similar developments failed to appear in Mainz, even though the broadcasters ZDF, SWR and formerly Sat.1 (Sat.1 was located in Mainz between 1985 and 1999 and then relocated to Berlin) were or still are strong employers and therefore prospective customers (Dorenkamp and Mossig 2006; Dorenkamp 2008). In order to analyze the meaning of economic policy for the genesis of the German broadcasting system and its spatial pattern we firstly evaluated comprehensive sources of secondary literature. Owing to the fact that many decisions in broadcasting policy occur in informal systems (Isenberg 2007), we conducted 191 guided interviews with political and private representatives of German television production units. We conducted the interviews between 2001 and 2006 in Cologne, Munich, Hamburg, Berlin, Frankfurt/Mainz/Wiesbaden and in other locations (see Table 3.1) in order to measure the importance of the influence of economic policy on the processes of clustering in Germany’s television industry. In the following, the results of these empirical surveys are illustrated. They show that the evolution of the spatial pattern of Germany’s TV industry and of particular clusters can only be understood by considering the measures and decisions of economic policy on national and regional levels.

56

Source:

Own survey.

TV broadcaster TV production firm Studio operator/ technical service provider Other service providers (actors’ agency, casting, camera crews, consulting, cutter/ post-production, screenwriters, directors) Marketing (airtime marketing, public relations) Institutional environment (organizations, universities, funding, film subsidies, business development, policy) Overall number of Interviews

6 21 2 8

4 3

44

1 7

46

Cologne

9 22 4 3

Munich

28

–

–

– 5 – 23

Hamburg

43

2

–

13 26 2 –

Mainz/ Wiesbaden/Frankfurt

Interviewees

25

–

–

4 9 2 10

Berlin

5

1

–

1 2 1 –

Others

Interviews in Munich, Cologne, Hamburg, Berlin, Mainz/Wiesbaden/ Frankfurt and other locations

Position inside the production system

Table 3.1

191

3

5

33 85 11 44

All in all

Clusters and spatial systems in German TV production

4

57

EMPIRICAL LINKS: THE EVOLUTION OF THE SPATIAL PATTERN OF GERMANY’S TV INDUSTRY AS A RESULT OF DECISIONS IN ECONOMIC POLICY

Already during the Weimar Republic the state exerted an influence on German broadcasting (Wilke 2003, 157). During that time broadcasting was under the technical and legal control of the administration of the empire’s telegraphy (Reichstelegraphenverwaltung), which was subordinated to the empire’s post ministry (Reichspostministerium), and this possessed a monopoly of broadcasting and telegraphy (Fritze 1992, 23). This monopoly existed also because broadcasting was destined for military use (Beck 2005, 168). For this reason the empire’s post ministry had a dominant economic and technological position because all the transmitters belonged to that ministry (ibid.). In order to broadcast a programme, each broadcaster needed a licence that could only be granted by the administration of the empire’s telegraphy. Being an institution of the empire’s post ministry, this administrative department possessed the exclusive authority to allocate transmitting frequencies. Having control over licences meant having control over a powerful resource, and by using this resource the empire’s post ministry was able to gain influence on the contents of broadcasting. The first licensed company was ‘Deutsche Stunde, Gesellschaft für drahtlose Belehrung und Unterhaltung mbH’. This company was privately organized but in fact firmly integrated into the empire’s administration by complex holdings (Beck 2005, 167). However, during the 1920s technological constraints existed so that broadcasting a programme was not possible by using a central transmitter of the empire (Fritze 1992, 25). In conjunction with this fact considerations of regional peculiarities were responsible for the distinct foundation of regional stock corporations all over the republic. These corporations were distributed according to the competency areas of the Weimar Republic’s Foreign Office (Dorenkamp 2004, 2008; Beck 2005, 167). That is why regional stock corporations of the ‘Deutsche Stunde’ were founded and licensed for example in Berlin (29 October 1923), Munich (30 March 1924) and Hamburg (5 February 1924). The corporation that had been intended for Cologne had to be located in Münster at first (10 October 1924) because the Rhineland was being occupied. But when the French soldiers left the Rhineland, the head office of that corporation was relocated to Cologne in 1926 (Stuiber 1998, 148). Thus, the federal broadcasting structure during the Weimar Republic cannot be regarded as a result of federal virtue (Stuiber 1998, 145). In fact this structure necessarily arose from technical needs (Fritze 1992, 25). At the same time these circumstances satisfied the growing interest of the federal states in broadcasting (ibid., 26).

58

Emerging clusters

It is important to know that the previously-mentioned processes during the Weimar Republic happened by an internal interplay between the executive authorities of the empire and of the federal states (ibid., 29). Already here, there were indications of tendencies that were to become characteristic of the Federal Republic’s broadcasting policy, namely decision-making by informal bargaining between different political partners (Jarren 1997, 209). In the case of the Weimar Republic the obvious intention of the government was the basis for these processes, aiming at gaining a strong influence of the state on broadcasting. This development was completed between 1933 and 1945, when broadcasting was nationalized and forced into line. Until Germany’s surrender in May 1945 broadcasting was used by Hitler’s NSDAP as a means of propaganda. This propaganda misled millions of Germans into believing that it was right to wage World War II. After the Allies had gained control over Germany, all the state authority over Germany lay in their hands. Speedily they made an effort to rebuild German broadcasting and confiscated all the technical equipment of National Socialist television and nearly all the transmitters (Bausch 1980, 43 ff.; Altendorfer 2004, 319). Subsequent broadcasting began in all the zones of occupation by means of military transmitters. In the American occupation zone Radio Munich started on 12 May, 1945, Radio Hamburg in the British sector on 4 May 1945, Radio Berlin in the Soviet occupation zone on 13 May 1945 and Radio Koblenz in the French sector on 14 October 1945 (Bausch 1980, 43 ff.). However, besides rebuilding the technical infrastructure it was necessary to systematically redesign a new broadcasting system. As a consequence of the negative experiences people had during World War II by the misuse of broadcasting for purposes of propaganda, the Allies brought about a decision of regulation policy: the rebuilding of German broadcasting was not to be modelled on any form of state-run broadcasting (Bausch 1980, 20; Beck 2005, 170). However, the Allies could not agree on a collective concept for Germany’s new broadcasting system (Bausch 1980, 18). That is why the Allies developed different models for broadcasting inside their occupation zones (see in the following Altendorfer 2004, 305 ff.), but each model provided for the establishment of regional broadcasters in each sector. American broadcasting politicians decided not to impose the American commercial broadcasting system. In fact America aimed at creating a decentralized broadcasting system that was to be free from governmental and party political influence. Therefore they established a system of corporations under public law by founding the regional broadcasters Bavarian Broadcasting (Bayerischer Rundfunk, BR) and Hessian Broadcasting (Hessischer Rundfunk, HR) on 1 October 1948, Bremen Broadcasting

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(Radio Bremen, RB) on 15 March 1949 and South German Broadcasting (Süddeutscher Rundfunk, SDR) on 12 May 1949. Inside the British sector media politicians decided to establish a central broadcasting corporation under public law, modelled on the British BBC, the broadcaster Northwest German Broadcasting (Nordwestdeutscher Rundfunk, NWDR), which was founded on 1 January 1948 and which had its headquarters in Hamburg and branches in Cologne, Hanover and Berlin. The French established Southwest Broadcasting (Südwestfunk, SWF) as a broadcasting corporation under public law on 30 October 1948 but put it under the control of the French commander-in-chief. Inside the Soviet sector a centrally directed broadcasting system was created between 1945 and 1949 with a main transmitter in Berlin and smaller transmitters in Leipzig, Dresden, Schwerin, Potsdam, Weimar and Halle. The decision of Allied media policy to organize German broadcasting according to the idea of corporations under public law was the first regulatory intervention in German broadcasting. The historical examination of the genesis of Germany’s broadcasting system reveals that broadcasters under public law were not able to decide freely on their locations. The decisions were made in accordance with the political guidelines of the Allies and were mainly governed by practical considerations (Bausch 1980, 46 ff.). A completely new location for the occupier’s military transmitters, Baden-Baden, was only chosen by the French occupying army. The British and Americans used the technical infrastructure and the transmitters in those cities that had been the headquarters of broadcasting institutions during the Third Reich. Predominantly in those places the control centres of broadcasting organizations were established. Hence, the decisions of regulation policy on the organization of the German broadcasting system under public law led to the settlement of broadcasters under public law in their respective locations. This means that their choice of location was not made due to existing ‘windows of locational opportunity’. The same facts applied to the additionally founded ZDF, which was located in Mainz after lengthy and informal bargaining processes between the prime ministers of Germany’s federal states and a concluding crucial vote (Dorenkamp 2008, 150 f.). The decision on the foundation and localization of the ZDF was again governed by politics and can be traced back to the decisions of regulation policy by the Allies to establish the German broadcasting system under public law. It was this decision that enabled German political authorities to influence the choice of the broadcasters’ location. Furthermore, the decisions of regulation policy resulted in the fact that the broadcasters under public law became publically protected monopolists that took advantage of the market in the absence of competition

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and that were in a position to establish strong systems of production and distribution in their respective locations and therefore gain a regional leadership which could be the starting point for subsequent processes of cluster formation. In order to fulfil their legally required and defined programme tasks, which include the preparation of high-quality balanced and extensive information, the presentation of a variety of opinions and the production of cultural and entertaining programmes, the broadcasters under public law decided to produce telecasts by only using their own personnel and capacities of production and therefore not placing orders with private companies (Hoffmann-Riem 1999, 30). Thus, the broadcasters under public law established strong vertical-integrated systems of TV programme production and distribution and failed to create a regional demand for suppliers. By this means, the politically established regional leadership of broadcasters under public law could not be converted into a regional first-mover advantage at the respective locations. The broadcasters under public law did not become incubators and failed to create seedbeds for significant foundations of firms, for relocations and spin-offprocesses and consequent processes of cluster formation. When the Federal Constitutional Court decided in its third TV ruling in 1981 (BVerfGE 57, 295) that the introduction of private broadcasting was possible in principle on certain conditions, it paved the way for today’s dual broadcasting system with its coexistence of broadcasters under public law and private broadcasters. When private broadcasting companies were founded, the states found many opportunities to take an active role in location policy. Also the private broadcasters in Germany had to be subjected to regulation in order to ensure that they would meet the aims of broadcasting policy. Thus, rules on market entry, programme control and funding were also developed for private broadcasters. The adherence to these rules was secured by each federal state’s media agencies. If a private broadcasting company wants to broadcast its programme, it has to acquire a broadcasting licence. This licence can only be granted by the responsible media agency which is acting as provider, administrator and distributor of usage rights to broadcasting frequencies (Heinrich 2002, 199; Puppis 2007, 65). In 1984 three means of transmitting broadcasting signals existed: cable network, terrestrial transmission via antennas and satellite transmission. Despite the poor development of the German cable network until 1982, the transmission of programmes via cable networks proved to be profitable, especially in terms of a combination with satellite technology, which indeed was not yet fully developed. Anyhow, the televisor satellite ECS 1 served as a transponder for the transmission of broadcasting signals to central cable network stations, which were able to feed the programmes into nationwide cable networks. A licence that was

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granted for the transmission of broadcasts on ECS 1 would enable the broadcasters to reach an increasing number of households with their programmes. But at first the terrestrial frequencies were of the main interest. Nearly every household possessed antennas, and this mode of transmitting broadcasts had the widest range (Beck 2005, 178). A wide range was very important to the private broadcasters because by this means they were able to charge higher prices for commercials, which was the only way to achieve the aim of maximizing profits (Heinrich 2002, 97). That is why private broadcasters tried to obtain licences for terrestrial, cable network or satellite frequencies. The cradle of private German broadcasting stood in Rhineland-Palatinate (Reese 1989, 375). On 1 January 1984, a pilot project for a cable network by also feeding in private broadcasts was started in Ludwigshafen. This pilot project was supervised by the RhinelandPalatinate media agency ‘Anstalt für Kabelkommunikation’ (AKK), which was located in Ludwigshafen. Pilot projects for cable networks were to serve for testing models of a future media landscape with simultaneous scientific observation (Eifert and Hoffmann-Riem 1999, 56). The private broadcaster PKS was also licensed for transmitting its programmes inside the local cable network of Ludwigshafen’s pilot project. However, in order to be granted this licence PKS had to relocate to Rhineland-Palatinate and because of technical considerations to Ludwigshafen: and then, of course it was like this: They said ‘Broadcasters that want to participate in the pilot project should be resident in Rhineland-Palatinate’. We did not want to grant borrowed licences. That is why it developed here the way it did, and the AKK as a media agency in Ludwigshafen did the technical handling and then it appeared natural to settle in a place next to the point of programme feed-in to the cable network. It would have been quite expensive if we had had to carry the signal from somewhere else in Germany. That is why they firstly settled in Ludwigshafen. (Interview 134; own translation)

AKK was also responsible for the feed-in of satellite broadcasting into cable networks (Reese 1989, 378) and was therefore authorized to grant a Europe-wide frequency on satellite ECS 1. Under the direction of PKS a consortium of companies applied for a licence for broadcasting on ECS 1’s TV channel. This licence was granted on 1 April 1984 (Vennebusch 1998, 80 f.). As from 1 January 1985, PKS was officially on the air under its new name ‘Sat.1’. In advance a relocation was necessary. This relocation was carried out from Ludwigshafen to Mainz and was mainly politically justified: Considering the political facts, only a relocation inside Rhineland-Palatinate was possible for us due to our Rhineland-Palatinate licence and the strong

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However, a crucial factor for Sat.1’s decision to relocate to Mainz was also the availability of existing facilities like infrastructure and thus favourable production conditions due to the presence of other TV stations in Mainz. The following quotation underlines that the presence of broadcasters under public law actually attracted private broadcasters: Well, Ludwigshafen was difficult in terms of logistics, there were logistic problems, the place did not have any connections to the media and there were not any production plants and additional suppliers or contractors. It was difficult to find employees and so on. So we were proud to be able to argue: ‘Well, let us leave Ludwigshafen and move to the capital of Rhineland Palatinate, to Mainz’. And of course we hoped to find helpful facilities of infrastructure in Mainz due to the presence of ZDF, HR and SWR (formerly SWF). (Interview 86; own translation)

In order to enable more people to receive its programmes also via terrestrial antennas and not only via satellites (which provided the chance of feeding the Sat.1 programme into other cable networks), Sat.1 step by step applied for terrestrial broadcasting licences in each federal state. The media agencies on their part granted licences by demanding in return the broadcasting of regional information programmes within the private broadcaster’s programme. Moreover, they demanded a regional commitment on the part of private broadcasters. The following quotation underlines these processes and shows how Sat.1 got a terrestrial broadcasting licence in Berlin in August 1987: the federal state’s media agencies were responsible for the allocation of antenna frequencies. Sometimes only one broadcasting chain existed and there were always two main competitors, namely RTL and Sat.1. Then sheer political haggling followed. Berlin’s licence was about millions of viewers. (. . .) For example, in Berlin there was a night meeting. RTL and I . . . well, it was like a sale at an auction . . . in the morning at 3.30 I agreed to found also a Sat.1-production unit in Berlin. RTL . . . those folks had gone to bed and were not able to catch up and next morning at eight o’clock I got the licence. Actually it is unthinkable today how things happened at that time. Like I said: It was media policy, media policy, media policy, and that was tantamount to locational policy and was no economic policy. (Interview 86; own translation)

In this manner the ‘frequency rallye’ (Hanfeld 2003) of private broadcasters went on. The practice of granting licences as experienced for

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example by Sat.1 shows that the allocation of licences was partly adventurous. It happened in informal bargaining systems and behind closed doors between politicians and the managers of broadcasting companies. Likewise it is obvious that the choices of location made by many private German broadcasters were considerably influenced by the guidelines of economic policy, which depended on the framework of system policy concerning the regulation of broadcasting. Concretely, the measures of structural policy of each federal state were carried out in the shape of location policy. Ambitious efforts of location policy can also be found during the phase of the foundation and licensing of other private broadcasters. The Luxembourgian broadcaster RTL Plus, which initially broadcast its German programme from Luxembourg, decided immediately after the first broadcasting law of North-Rhine Westphalia came into effect to relocate its headquarters to Germany. RTL did so because it did not want to be at a disadvantage regarding the allocation of North-Rhine Westphalian licences. These licences were preferentially granted to aspirants whose studios and production units were located in North-Rhine Westphalia. At the same time aspirants had to guarantee that they would buy the programmes produced by two North-Rhine Westphalian production firms (Nünning 2003, 106). The concrete locational decision of RTL in favour of Cologne is additionally due to the initiatives of Cologne’s municipal savings bank, which offered apartments, buildings and a comprehensive infrastructure (Geschwandtner-Andreß 1999, 47). At the same time North-Rhine Westphalian politicians and especially Prime Minister Johannes Rau and his chief of the state chancellery, Wolfgang Clement, promised to support the companies in the media scene in order to cope with structural change. They decided to provide generous funds to these new lines of business. Moreover, in Cologne the locational decisions of many private broadcasters were facilitated on account of a TV production infrastructure which already existed to a certain extent and had been created by the WDR, the broadcaster under public law. In Cologne, the WDR had been required by the city council already in the mid-1970s to abandon its vertically integrated production system in favour of increasingly placing orders with private service providers. This had a very positive influence on Cologne’s TV production landscape and very early attracted competent external service contractors to Cologne. This existing production infrastructure had a very positive effect on the locational decisions of many private broadcasters in favour of the North-Rhine Westphalian city of Cologne (Voelzkow 2002, 142). In other federal states the media agencies also linked the granting of licences to considerations of regional economic policy, for instance in Bavaria by reorganizing the private broadcaster

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Tele 5, which became DSF, and by relocating it to Munich (1993), or by licensing Home Order Television 1995 (Nünning 2003, 82 ff.). Private broadcasters were players in the broadcasting market who were in urgent need of telecasts but did not possess sufficient capacity to produce these telecasts. That is why they established the principle of placing orders with independent production firms and therefore strong vertically desintegrated production systems (Mossig 2004, 256 f.), which caused an increase in regional demand for independently produced TV programme contents and therefore created opportunities for the foundation of new firms, for relocation and spin-off processes, which evidently took place in Cologne. There, the private broadcaster RTL particularly generated a strong regional demand for independently produced telecasts. This demand was conducive to converting the WDR-specific regional leadership into successful processes of cluster formation by causing the foundation or relocation of new firms and especially by spin-off processes (Voelzkow 2002; Beier 2003; Mossig 2006, 113 f.). Comparable developments could not be observed in the city of Mainz. Here, neither broadcasters under public law (ZDF, SWF/SWR) nor the private broadcaster Sat.1 became incubators and therefore failed to create seedbeds for successful processes of cluster formation. These facts are again due to certain measures of broadcasting policy (Dorenkamp 2008).

5

CONCLUSION

The descriptions and explanations in this chapter have indicated that the analysis of the evolution of processes of cluster formation and spatial patterns of industrial activities has to consider more carefully the role played by decisions relating to economic policy. The example of the German TV industry shows how decisions in system policy about regulating industrial activities can lead to politically influenced choices of industrial location and subsequent clustering processes. It became apparent that this spatial influence can take effect on the one hand if decisions of system policy on regulation create market entry barriers which lead to the politically motivated foundation of monopolistic companies under public law whose choices on location are subsequently made by informal bargaining inside political bodies and whose systems of production are established as a result of political decisions. On the other hand the analysis of the private broadcasters’ choice of locations showed that decisions of system policy on regulation create a considerable scope for measures of structural policy in the shape of location policy, if political authorities are entitled as a result of decisions on regulation to have powerful resources like licences,

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which are necessary for private companies that intend to enter a special market. Concretely, in German broadcasting regulatory mechanisms of system policy manifested themselves in the shape of the control of market entry. The federal states’ broadcasters under public law were founded and located by the political directives of the Allies and of German politicians. At the same time they were established as vertically integrated and governmentally protected monopolists (Voelzkow 2002, 141). For these broadcasters market exit was never possible. However, their funding was always secure. That is why they were able to concentrate funds, qualified employees and technical know-how on their locations. Thus, the broadcasters under public law acted as market pioneers and built up strong regional production and distribution systems at their locations and therefore gained regional leadership. However, these production systems mainly remained in-house and were operating by the use of companyowned facilities. Nevertheless external service providers or producers could benefit from the presence of these broadcasters if broadcasters under public law had to abandon their vertically integrated production system in favour of placing orders with private firms. Broadcasters under public law acting as monopolistic market pioneers were therefore able to create successful seedbeds for subsequent clustering processes at their locations. Their fertility increased by the broadcaster’s growing financial power and the volume of orders placed with private companies. Thus, the market pioneers were able to provide regional first-mover advantages for their locations. This regional first-mover advantage later influenced the locational decisions of private broadcasters. After 1984, private broadcasters always strove for good contacts (‘political resources’, Frynas et al. 2006, 321) with the media agencies of the federal states. By doing this they tried to recommend themselves as candidates for the allocation of scarce broadcasting frequencies in order to enter the new market first. The media agencies of the federal states, equipped with powerful broadcasting licences, practised location policy in favour of their own federal state by working together with economic politicians who created financial incentives in terms of promises of economic support. Concrete locational decisions of private broadcasters were on the one hand based on the political demands of regional economic politicians who linked the granting of licences directly to a company’s promise to settle in the ‘right’ location. On the other hand the companies’ decisions were shaped by the entrepreneurial necessity of finding qualified personnel and an existing infrastructure for producing telecasts in proximity to their own headquarters. In fact, qualified personnel could only be found at locations with broadcasters under public law. The infrastructure for producing

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telecasts could also only develop at these locations. If broadcasters under public law made contracts with external service providers, they created, acting as market pioneers, a local demand for externally produced programmes. In addition, their qualified personnel served as a resource of talents that could be attractive for private broadcasters looking for such personnel. That is why Germany’s most important private broadcasters RTL and Sat.1 located in Cologne and Mainz, respectively. RTL was able to build most of its production units in Cologne, and on account of its increasing demand for external programme productions in Cologne caused a boom in the production of TV programmes. This boom is reflected in local spin-off-processes and culminated in a successful cluster formation based on the seedbed created by RTL (Dorenkamp and Mossig 2006). By contrast, Sat.1 failed to create such seedbeds in Mainz and therefore did not initiate a successful cluster formation. Processes of selective cluster formation in the German TV industry therefore mainly depend on the presence and regional activities of private broadcasters. Altogether these explanations have shown how measures on the part of economic policy created and durably shaped the entire spatial pattern of a regulated industry in Germany. However, these political processes have been neglected in most studies in economic geography on the evolution of spatial concentrations of industrial activities. Surely this is due to the frequently informal bargaining processes between politicians and other parties which often lead to entrepreneurial choices of location but which are normally not documented or written down. Therefore it is difficult to gain access to these processes. However, the analysis of other lines of business as well as recent developments show that spatial effects of economic policy on cluster formation are surely not restricted to the German TV industry. Decisions in system policy on the regulation of industrial activities also occur in other sectors of the economy, for example in the postal service, in the telecommunication and energy industries, railway service and the banking sector as well as in multimedia and internet services (Weber 1986; Heinrich 2001, 91; Puppis 2007, 169 ff.). But especially the global financial meltdown since autumn 2008 and its impact on the whole economic order point to the outstanding role of national, European and global economic policy for companies, their performance and their decisions on the choice of location. At present, many nations which are affected by an economic downturn make an effort to subject the financial and capital markets to more effective regulation and to preserve individual companies or whole lines of business from bankruptcy by governmental declarations of surety or even by partial nationalization. Moreover, these nations take measures of wage policy, monetary policy and fiscal policy and introduce macropolitical economic stimulus packages in order to give

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their companies better financial room for manoeuvre. We can assume that these measures of economic policy will lead to strong spatial effects, the consequences of which cannot be foreseen. But also in the absence of an economic crisis the economic policy framework exists. That is why economic geography will have to attach more importance to the supportive and/or restrictive influence of the economic policy framework when analysing the evolution of clusters and spatial patterns of industrial activity.

NOTES 1. Fromhold-Eisebith and Eisebith (2005, 1252) call this understanding of cluster policy as a state-run policy carried out by political authorities ‘explicit top-down initiatives’ and contrast this understanding of cluster promotion with ‘implicit bottom-up initiatives’, which are mainly employed by private groups. 2. Like competition policy (Wettbewerbspolitik), regulation policy (Regulierungspolitik) is a subdomain of system policy (Welfens 2008, 489). 3. The channels of SWR’s business are located in Stuttgart, Baden-Baden and Mainz. The entire income of this broadcaster is divided equally between the three locations. 4. The Rhineland-Palatinate prime minister traditionally holds the chairmanship of the federal states’ broadcasting commission. This commission acts as a discussion forum for a collective media policy and as a decision-making body. Decisions made in this commission are presented to the federal states’ parliaments and governments for assent.

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des Hans-Bredow-Instituts, Band 17, Baden-Baden and Hamburg: NomosVerlagsgesellschaft, 13–41. Hoppe, Heidrun C. and U. Lehmann-Grube (2001), ‘Second-Mover Advantages in Dynamic Quality Competition’, Journal of Economics Management Strategy 10 (3), 419–33. Hospers, Gert-Jan (2005), ‘Best Practices and the Dilemma of Regional Cluster Policy in Europe’, Tijdschrift voor Economische en Sociale Geografie 96 (4), 452–57. Hospers, Gert-Jan and Beugelsdijk, S. (2002), ‘Regional Cluster Policies: Learning by Comparing?’, KYKLOS, International Review for Social Sciences 55 (3), 381–402. Hospers, Gert-Jan, F. Sautet and P. Desrochers (2008), ‘The Next Silicon Valley? On the Relationship between Geographical Clustering and Public Policy’, International Entrepreneurship and Management Journal 4 (Online First™), 1–15. Huff, Lenard C. and William T. Robinson (1994), ‘Note: The Impact of Leadtime and Years of Competitive Rivalry on Pioneer Market Share Advantages’, Management Science 40 (10), 1370–77. Isenberg, Meike (2007), Verhandelte Politik. Informale Elemente in der Medienpolitik, Berlin: VISTAS Verlag. Jarren, Otfried (1997), ‘Rundfunk und Rundfunkregulierung in Deutschland– Probleme, Defizite und Zukunftsaufgaben’, in Heribert Schatz, Otfried Jarren and Bettina Knaup (eds), Machtkonzentration in der Multimediagesellschaft? Beiträge zu einer Neubestimmung des Verhältnisses von politischer und medialer Macht. Wiesbaden: Westdeutscher Verlag, 203–15. Jarren, Otfried (2007), ‘Die Regulierung der öffentlichen Kommunikation. Medienpolitik zwischen Government und Governance’, Zeitschrift für Literaturwissenschaft und Linguistik 146, 131–53. Kalyanaram, Gurumurthy and Glen L. Urban (1992), ‘Dynamic Effects of the Order of Entry on Market Share, Trial Penetration, and Repeat Purchases for Frequently Purchased Consumer Goods’, Marketing Science 11 (3), 235–50. Kerin, Roger A., R. Varadarajan and R.A. Peterson (1992), ‘First-mover Advantage: A Synthesis, Conceptual Framework, and Research Propositions’, Journal of Marketing 58, 33–52. Kiese, Matthias (2008a), ‘Mind the Gap: Regionale Clusterpolitik im Spannungsfeld von Wissenschaft, Politik und Praxis aus der Perspektive der Neuen Politischen Ökonomie’, Zeitschrift für Wirtschaftsgeographie 52 (2–3), 129–45. Kiese, Matthias (2008b), ‘Stand und Perspektiven der regionalen Clusterforschung’, in Matthias Kiese and Ludwig Schätzl (eds), Cluster und Regionalentwicklung. Theorie, Beratung und praktische Umsetzung, Dortmund: Verlag Dorothea Rohn, 9–50. Klepper, Steven (2002), ‘The Capabilities of New Firms and the Evolution of the US Automobile Industry’, Industrial and Corporate Change 11, 645–66. Knieps, Günter (2007), Netzökonomie. Grundlagen–Strategien–Wettbewerbspolitik, Wiesbaden: Gabler Verlag. Knieps, Günter (2008), Wettbewerbsökonomie. Regulierungstheorie, Industrieökonomie, Wettbewerbspolitik, 3rd Edition, Heidelberg: Springer. Koch, Walter A.S., C. Czogalla and M. Ehret (2008), Grundlagen der Wirtschaftspolitik, 3rd Edition, Stuttgart: Lucius & Lucius Verlagsgesellschaft.

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Koh, Winston T.H. (1993), ‘First-mover Advantage and Organizational Structure’, Economics Letters 43, 47–52. Kulke, Elmar (2004), Wirtschaftsgeographie, Paderborn, Munich, Vienna and Zurich: Ferdinand Schöningh. Lieberman, Marvin B. and D.B. Montgomery (1988), ‘First-mover Advantages’, Strategic Management Journal 9, 41–58. Lieberman, Marvin B. and D.B. Montgomery (1998), ‘First-mover (Dis)advantages: Retrospective and Link with the Resource-based View’, Strategic Management Journal 19, 1111–25. Luckenbach, Helga (2000), Theoretische Grundlagen der Wirtschaftspolitik, 2nd Edition, Munich: Vahlen. Mai, Michael (2005), Medienpolitik in der Informationsgesellschaft, Wiesbaden: Verlag für Sozialwissenschaften. Mans, Peter, F. Alkemade, T. van der Valk and M.P. Hekkert (2008), ‘Is Cluster Policy Useful for the Energy Sector? Assessing Self-Declared Hydrogen Clusters in the Netherlands’, Energy Policy 36, 1375–85. May, William, C. Mason and S. Pinch (2001), ‘Explaining Industrial Agglomeration: The Case of the British High-Fidelity Industry’, Geoforum 32, 363–76. Meyer-Stamer, Jörg (1999a), ‘Strategien lokaler/regionaler Entwicklung. Standortpolitik und systemische Wettbewerbsfähigkeit’, Nord-Süd aktuell, 3/1999. Meyer-Stamer, Jörg (1999b), ‘Lokale und regionale Standortpolitik– Konzepte und Instrumente jenseits von Industriepolitik und traditioneller Wirtschaftsförderung’, INEF-Report 39/1999. Min, Sungwook, M.U. Kalwani and W.T. Robinson (2006), ‘Market Pioneer and Early Follower Survival Risks: A Contingency Analysis of Really New Versus Incrementally New Product-Markets’, Journal of Marketing 70, 15–33. Morgenpost Online (2008), ‘Senat verzichtet auf Geld, wenn Sat.1 in Berlin bleibt’, available online: http://www.morgenpost.de/berlin/article987737/Senat_verzich tet_auf_Geld_wenn_Sat_1_in_ Berlin_bleibt.html, 31 March 2009. Mossig, Ivo (2000), Räumliche Konzentration der VerpackungsmaschinenbauIndustrie in Westdeutschland. Eine Analyse des Gründungsgeschehens, Wirtschaftsgeographie Band 17, Münster, Hamburg and London: LITVerlag. Mossig, Ivo (2004), ‘Steuerung lokalisierter Projektnetzwerke am Beispiel der Produktion von TV-Sendungen in den Medienclustern München und Köln, Erdkunde 58, 252–68. Mossig, Ivo (2006), Netzwerke der Kulturökonomie. Lokale Knoten und globale Verflechtungen der Film- und Fernsehindustrie in Deutschland und den USA, Bielefeld: transcript Verlag. Mossig, Ivo (2008), ‘Entstehungs- und Wachstumspfade von Clustern. Konzeptionelle Ansätze und empirische Beispiele’, in Matthias Kiese and Ludwig Schätzl (eds), Cluster und Regionalentwicklung: Theorie, Beratung und praktische Umsetzung, Dortmund: Verlag Dorothea Rohn, 51–68. Nünning, Volker (2003), Medienpolitik als Standortpolitik. Vergleichende PolicyAnalyse der Medienpolitik Bayerns und Nordrhein-Westfalens am Beispiel des bundesweiten Privatfernsehens, unpublished diploma thesis at Leibniz University Hanover. Puppis, Manuel (2007), Einführung in die Medienpolitik, Konstanz: UVK Verlagsgesellschaft.

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Raines, Philip (2002), ‘Cluster Policy–Does it Exist?’, in Philip Raines (ed.), Cluster Development and Policy, Aldershot: Ashgate Publishing. 21–33. Reese, Jürgen (1989), ‘Rheinland-Pfalz: Landeszentrale für private Rundfunkveranstalter (LPR)’, in Gerd-Michael Hellstern, Wolfgang Hoffmann-Riem and Jürgen Reese (eds), Rundfunkaufsicht in der Bundesrepublik Deutschland, Band 3: Rundfunkaufsicht in vergleichender Analyse, Paderborn: Bonifatius Verlag, 375–98. Robinson, William T. (1988), ‘Sources of Market Pioneer Advantages: The Case of Industrial Goods Industries’, Journal of Marketing Research 25, 87–94. Robinson, William T. and C. Fornell (1985), ‘Sources of Market Pioneer Advantages in Consumer Goods Industries’, Journal of Marketing Research 22, 305–17. Robinson, William T., G. Kalyanaram and G.L. Urban (1994), ‘First-mover Advantages from Pioneering New Markets: A Survey of Empirical Evidence’, Review of Industrial Organization 9, 1–23. Shaffer, Brian (1995), ‘Firm-level Responses to Government Regulation: Theoretical and Research Approaches’, Journal of Management 21 (3), 495–514. Shankar, Vishwakarma, G.S. Carpenter and L. Krishnamurthi (1998), ‘Later Mover Advantage: How Innovative Late Entrants Outsell Pioneers’, Journal of Marketing Research 35, 54–70. Schätzl, Ludwig (1994), Wirtschaftsgeographie 3–Politik, Paderborn: Ferdinand Schöningh. Schultze, Rainer-Olaf (2005), ‘Staat’, in Dieter Nohlen and Rainer-Olaf Schultze (eds), Lexikon der Politikwissenschaft. Theorien, Methoden, Begriffe, Band 2 (N–Z), Munich: C. H. Beck, 944–6. Spiegel Online (2008), ‘ProSiebenSat.1 legt radikales Sparprogramm auf’, available online: http://www.spiegel.de/wirtschaft/0,1518,590305,00.html, 31 March 2009. Storper, Michael and R. Walker (1989), The Capitalist Imperative. Territory, Technology, and Industrial Growth, Oxford, Cambridge, MA: WileyBlackwell. Stuiber, Heinz-Werner (1998), Medien in Deutschland. Band 2: Rundfunk. Teil 1: Zum Rundfunkbegriff, Rundfunktechnik, Geschichte des Rundfunks, Rundfunkrecht, Konstanz: UVK Verlagsellschaft. Sydow, Jörg and U. Staber (2002), ‘The Institutional Embeddedness of Project Networks: the Case of Content Production in German Television’, Regional Studies 36 (3), 215–27. Urban, Glen L., T. Carter, S. Gaskin and Z. Mucha (1986), ‘Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications’, Management Science 32 (6), 645–59. VanderWerf, Pieter A. and John F. Mahon (1997), ‘Meta-Analysis of the Impact of Research Methods on Findings of First-Mover Advantage’, Management Science 43 (11), 1510–19. Vennebusch, Angela (1998), Die Neugliederung der deutschen Fernsehlandschaft, Frankfurt am Main, Berlin, New York, Paris, Wien: Verlag Peter Lang. Voelzkow, Helmut (2002), ‘Die “neue Kultur der Selbständigkeit” und ihr institutionelles Umfeld: Erfahrungen aus der Medienwirtschaft Köln’, in Rolf G. Heinze and Frank Schulte (eds), Unternehmensgründungen. Zwischen Inszenierung, Anspruch und Realität, Wiesbaden: Westdeutscher Verlag, 130–48. Von Einem, Eberhard (1991), ‘Industriepolitik: Anmerkungen zu einem

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kontroversen Begriff’, in Ulrich Jürgens and Wolfgang Krumbein (eds), Industriepolitische Strategien, Berlin: Rainer Bohn Verlag, 11–33. Vowe, Gerhard (2007), ‘Ordnung durch Medienpolitik und der Beitrag der Wissenschaft–das Beispiel Deutschland’, in Otfried Jarren and Patrick Donges (eds), Ordnung durch Medienpolitik?, Konstanz: UVK Verlagsgesellschaft, 71–82. Weber, Rolf H. (1986), ‘Wirtschaftsregulierung in wettbewerbspolitischen Ausnahmebereichen’, in Ernst-Joachim Mestmäcker (ed.), Wirtschaftsrecht und Wirtschaftspolitik, Band 86, Baden-Baden: Nomos-Verlagsgesellschaft. Welfens, Paul J.J. (2008), Grundlagen der Wirtschaftspolitik. Institutionen– Makroökonomik–Politikkonzepte, 3rd Edition, Berlin and Heidelberg: Springer. Wildmann, Lothar (2007), Wirtschaftspolitik. Module der Volkswirtschaftslehre, Band 3, Munich and Vienna: Oldenbourg Wissenschaftsverlag. Wilke, Jürgen (2003), ‘Kommunikations- und Mediengeschichte’, in Günter Bentele, Hans-Bernd Brosius and Otfried Jarren (eds), Öffentliche Kommunikation. Handbuch Kommunikations- und Medienwissenschaft, Wiesbaden: Westdeuscher Verlag, 151–68. Witt, Ulrich (1997), ‘Lock-In’ vs ‘Critical Masses’ – Industrial Change Under Network Externalities’, International Journal of Industrial Organization 15, 753–73.

4.

Bridging ruptures: the re-emergence of the Antwerp diamond district after World War II and the role of strategic action Sebastian Henn and Eric Laureys*

1

INTRODUCTION

‘Diamonds love Antwerp’ – these three words constitute the present slogan of the Antwerp World Diamond Centre, the organization concerned with the promotion of the local diamond sector and with keeping the Scheldt city an important hub for trading and manufacturing the precious stones in the age of globalization with competing centres evolving especially in low-cost countries like China and Thailand (The New York Times, 31 May 2005; Even-Zohar 2006). In fact, diamonds seem to have loved the Antwerp region even in the past as this part of Belgium has been a major centre for trading and polishing them since the 15th century (Walgrave 1993). Despite some ups and downs, there had not been any interruption of the commercial activities in this sector until World War II reached the country and trading as well as processing of the stones gradually were discontinued (Laureys 2005, chapter 5f.). After 1945, however, the Belgian diamond sector experienced a long-lasting boom which contributed significantly to the country’s economic power. This is surprising as the former infrastructure had partly been taken away or destroyed, many workers had fled, been deported or killed and promising diamond centres had evolved during the years of the German occupation (van Dyck 1989). Against this background, this chapter aims at analysing the factors which led to the re-emergence of the cluster at its former location. For this purpose it is structured as follows: first, the theoretical framework will be outlined showing that the development of clusters can be regarded as a path-dependent process. In this context the so-called window of locational opportunity approach will be introduced as a central concept of cluster development incorporating the idea of path dependency. Though it

74

The re-emergence of the Antwerp diamond district

75

provides a sound theoretical basis for the evolution of clusters (section 2), the insufficient conceptualization of strategic measures will be considered a major shortcoming the more so as purposeful action is important both for the creation and the continuation of a trajectory (section 3). Having given some details on the research design and methodology (section 4), the trajectory of the diamond district in Antwerp will be reconstructed (section 5) with special attention being paid to those factors which brought about the break of the path (section 6). Moreover, it will be shown that the war years led to the development of still existing growth centres at different locations – an aspect which to some extent resembles the stage of ‘shifting centres’ outlined by Storper and Walker (1989) (section 7). Finally, the reemergence of the former cluster structures will be discussed as an outcome of strategic actions and chance aspects, both of them limiting the degree of openness to the window of locational opportunity which existed at this time (section 8). The chapter ends by summing up the most important results and shedding light on further research questions (section 9).

2

CLUSTERS AS A PATH-DEPENDENT PHENOMENON

Whilst for a long time clusters were treated as quasi-stable entities exhibiting certain positive impacts on their regional economic environment in terms of increases in local productivity, entrepreneurial activities and corporate innovativeness (Cooke 2001), the research focus gradually has shifted towards a more dynamic view analysing the alterations of certain cluster characteristics (for example employment structure, technological diversity, network structure, adaptability) in the course of time (Dalum et al. 2005; Press 2006; Henn 2008). Amongst the different concepts addressing this aspect, evolutionary approaches recently have attracted great interest (Braunherhjelm and Feldman 2006). Most of them refer to the concept of path dependency which has its earliest precursors in the 19th century (Martin and Sunley 2006) and was re-introduced into modern economic thinking especially by David (1985) and Arthur (1994). The key characteristic of a path-dependent process is that its outcomes arise from its own history. More generally speaking, the long-term development of a system is considered to depend on its point of departure and on interferences occurring during its history1 with even minor accidents assumed to exert great influence on the course of development (so-called trajectory). Following this line of reasoning, different approaches aim at explaining the emergence of regional clusters as specific spatial and industrial configurations from an evolutionary point of view: stochastic concepts

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Emerging clusters

(see, for example, Arthur 1994) making up one important conceptual subgroup seek to analyse the evolution of economic agglomerations on the basis of mathematical models (for example polya urn experiments). As this approach, however, is characterized by several major shortcomings2 (for a criticism see Bathelt and Boggs 2005; Boschma 2007), the so-called window-of-locational-opportunity concept (Storper and Walker 1989; Boschma 1997) has attracted much more interest so far. Its proponents argue that the requirements of a new industry cannot be met at any location since they are far too innovative and therefore yet have to be provided by the companies themselves (for example by cooperating with other firms). As there are no specific regions offering such conditions there is great freedom when choosing the location, usually referred to as ‘window of locational opportunity’ (Storper and Walker 1989, p. 74).3 Once established, the development of the sites will vary since only a few of them will develop into growth centres. Others, on the contrary, will stagnate, grow only slowly or even decline. In other words: by and by companies in certain locations will gain competitive advantages over their competitors due to different positive feedbacks. As soon as the latter exceed a certain threshold, the window of locational opportunity closes (Storper and Walker 1989) and selective growth patterns dominate. Moreover, during their life-cycle most industries tend to establish remote locations (growth peripheries). Depending on whether this happens for reasons of expansion or cost reduction, the former locations typically will be kept or closed. As an industrial development path finally comes to an end, a reorganization of the respective industry is likely to take place leading to new windows of locational opportunity which favour the dislocation of the incumbents (stage of shifting centres). In summary, it can be said that for explaining the early formation of a cluster the model implicitly refers to two main factors: First, ‘human agency’ (Boschma 1997, p. 15) as the ability of actors to shape local structures which hardly provide a stimulating environment in order to generate growth conditions for the new companies. Second, agglomeration economies which set in once a ‘critical mass’ of companies has been reached at a location. While in the past many studies have focused on the latter aspect (see, for example, Press 2006; Buenstorf and Klepper 2009), the first one was neither conceptualized nor illustrated in more detail. In contrast, the results of intentional action of single actors often were regarded as accidential incidents, so-called ‘small events’ (Schamp 2000, p. 43). This view, however, has several shortcomings. First, attributing the emergence of a cluster to chance must be considered undersocialized as the social processes underlying its emergence are not regarded sufficiently (Martin and Sunley 2006). Second, referring to chance as an important explanatory

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factor in general bears the risk of failing ‘to explain why some apparently trivial events in some places are selected and become significant, whilst other similar chance events in other locations do not trigger the birth of new industrial trajectories’ (Martin and Sunley 2006, p. 425). Third, chance does not constitute a basis for policy advices which is not unproblematic in a discipline increasingly aiming at shaping the policy debate (Martin 2001; Menzel 2008). The role of chance during the emergence of clusters, however, should not completely be ruled out here. Rather chance can be said to be of indirect importance as it is able to modify the scope of action of the local players (Hoffmann 2005).4

3

STRATEGIC ACTION AND PATH CREATION

With reference to the evolution of technological paths, Garud and Karnøe (2001) were the first to discuss the role of strategic action from a conceptual perspective. According to them, ‘path dependence assigns too much weight to history; it inadequately characterizes the fragility of any path as it is produced and reproduced through micro level practices where social rules and artifacts are enacted’ (p. 8). Based on this view, the authors developed the concept of path creation which departs from the path dependency perspective in two main aspects. First, Garud and Karnøe (2001) argue that ‘entrepreneurs meaningfully navigate a flow of events even as they constitute them . . . entrepreneurs attempt to shape paths in real time, by setting processes in motion that actively shape emerging social practices and artifacts, only some of which may result in the creation of a new technological field’ (p. 3). Second, they highlight the process of ‘mindful deviation’ implying that entrepreneurs often have to change existing social practices, regulations or institutions. According to this line of reasoning, path creation highlights ‘the active role of the entrepreneur and the firm, for it is these actors that help shape the evolution of markets and the rules by which markets operate’ (Stack and Gartland 2005, p. 421). Regarding the relation between both concepts, Puffert (2000) stresses that purposeful action should not be regarded as an alternative to path dependency, as the latter would make actors even more interested in starting a new path based on their technologies and techniques. Furthermore, according to Meyer and Schubert (2007), the driving force behind emerging paths should be situated on a continuum between unplanned processes on the one hand and intentionally controlled action on the other hand. As the concept of path creation is introduced into geography, local actors (entrepreneurs, policy makers) can be regarded as being able to exert influence on the emergence of development paths (for example by

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mobilizing resources) (Martin and Sunley 2006; Hassink 2007). Following Martin and Sunley (2006) two kinds of mindful deviation can be distinguished in this context. First, there is an incremental form of path creation, implying that actors actively search for new solutions, that is processes, products, technologies and so on. Second, there may be ‘critical junctures and large-scale events or shocks’ (ibid.) making agents shape new strategies. Examples of the latter aspect are ruptures of cluster trajectories caused for instance by wars, natural catastrophes or other historical events (Porter 1990) with the cluster infrastructure being destroyed or the relevant actors intentionally or unintentionally hindered in carrying out their businesses. It can be hypothesized that strategic action in these cases is of particular relevance for several reasons. First, based on past experiences actors formerly associated to the sector might be willing to use their power to reinvent the cluster structures for different reasons (for example personal motives). Second, if the sector had performed well once, regional policy might be interested in redeveloping it by providing adequate support. Third, depending on the kind and duration of the rupture, some parts of a local knowledge-base or infrastructure might still exist and in principle facilitate a comparatively rapid growth of the sector.

4

RESEARCH DESIGN AND METHODOLOGY

To empirically analyse the role of strategic action in a re-emerging cluster, the diamond district in Antwerp was chosen as an example. Unlike the majority of empirical work on clusters the study thereby primarily makes use of historical methods: In detail, one of the authors conducted searches in 34 different archives (amongst them the Archives Nationales in France, the Bundesarchiv in Germany and the National Archives and Records Administration in the US) throughout the years 1997–2003 in order to analyse the development of the diamond sector during the Nazi rule. The results of these inquiries also provide the basis for several publications (Laureys 2003a, 2003b, 2005). In addition, an in-depth study in the Antwerp City Archive (Stadsarchief Antwerpen) carried out in 2008 aimed at explaining the developments in the post-war era. More than 70 000 datasets of the registers van aankomst en vertrek (Registers of arrival and departure) covering the period 1948–65 were analysed to shed light on the immigration of diamond people who contributed to the stabilization of the resuscitated district. In doing so, a total of 1135 diamond people could be identified as having migrated to Antwerp in the abovementioned period. Furthermore, the archive was searched for files documenting the re-emergence of the local diamond industry. Relevant

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dossiers could not only be found in the modern archive (Modern Archief) but also in the Camille Huysmans mayor office archives (both belonging to the Antwerp City Archive) where the correspondence of the former mayor of Antwerp is to be found. Since Jews play an important role in the history of the district (see section 5), it was important to consider their role during the rupture and the re-emergence of the structures as well. In this context, the authors were kindly provided with a list of all registered Belgian Jews dated as of 1940 as well as with the lists of deportation to the concentration camps by the Jewish Museum of Deportation and Resistance in Mechelen. Given the kind permission of its owner, it was furthermore possible to make use of the Brachfeld Archive thus gaining valuable information on Jews in the diamond trade. Finally, important insights into the rebuilding of the Jewish community and the cluster itself also could be gained by several interviews with (former) diamantaires from Antwerp or other people related to the Belgian diamond sector.

5

THE TRAJECTORY OF THE DIAMOND DISTRICT UNTIL 1940

The history of the diamond sector in Antwerp dates back to the 15th century (Walgrave 1993). The reasons for its location in this harbour are to be found in an early chapter of globalization. In the 14th century, Bruges traded Indian diamonds with Venice. With the Portuguese taking over the trade routes, however, Venice was replaced by Lisbon as the main European trade centre. Later, as Bruges’ sea access silted up during the 16th century, the trade between the emerging commercial centre Antwerp and Lisbon started to rule out the connection between Venice and Bruges. While for a long time the economic activities in the sector remained on a comparatively low level, the discovery of South-African diamond deposits in the 19th century provoked a massive influx of rough diamonds allowing for the employment of thousands of workers. In the aftermath of this event, a significant strengthening of the institutional basis set in: between 1887 and 1907 three unions were founded, and as a countermeasure the ‘Syndicate of the Belgian diamond industry’ (Syndicaat der Belgische Diamantnijverheid), an employers’ federation, was established in 1927. Moreover, the Diamantclub (established in 1893), the Beurs voor Diamanthandel (1904), the Diamantkring (1929), the Fortunia (1910) and the Vereniging voor Vrije Diamanthandel (1911) were founded as so-called diamond bourses allowing the trade of diamonds to be carried out in an adequate manner (Kinsbergen 1984; Laureys 2005).5

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Emerging clusters

Furthermore, in the 1930s different vocational schools with special foci on polishing were established for apprentices and unemployed people in Antwerp and its surroundings (Laureys 2005). Last but not least, the sector was granted credit through specialized diamond banks such as the Comptoir Diamantaire Anversois SA6 and the Amsterdamsche Bank voor Belgie in 1934, both of them having an exclusive focus on the diamond sector (Laureys 2005; ADB 2008). The continuous progress of the industry since the waning years of the 19th century is reflected in the growing number of employees (see Figure 4.1, section 8.2). In 1908, there were around 66 working benches with 1184 polishing wheels and around 1500 employees in the district. During World War I the supply of rough stones was interrupted due to the occupation of the city. In 1920, however, the number of diamond workers in the Antwerp region amounted to approximately 20 000 and in 1929 even to about 27 000. The Great Depression of the 1930s resulted in a tangible, albeit temporary impact on the diamond industry. It was not unusual for polishing shops to close for several weeks in these days. In 1937 the number of workers fell to 13 312 while as a result of immigration waves just before the German occupation in 1940 there were about 23–25 000 diamond workers, 2000 manufacturers, 4000 traders and 400 brokers in the district. Due to some overlaps, however, about 15 000 people probably were dependent on the diamond sector as a whole. Antwerp at this time accounted for cutting about 80 per cent of the world’s diamonds (measured by value) (Laureys 2005). From a geographical point of view it should be stressed here that in these days the sector was centred around Antwerp with the strongest concentration in a small area close to the Antwerp main station. While larger stones were cut in the city, too, for different reasons its surroundings (the so-called Kempen region) had become home to the fabricants of smaller stones since the turn of the century (Kinsbergen 1984). Given the spatial concentration of specialized economic actors and activities, the cluster term can be applied when referring to the spatial configuration of the industry. However, when considering the fact that both trade and processing were in the hands of tightly interconnected family-owned businesses the notion of a ‘diamond district’ alluding to the works on industrial districts (Marshall 1920; Markusen 1996) seems even more apt.7 For understanding the further course of the cluster trajectory it has to be mentioned here that the development of the diamond sector has been closely connected with the local Jewish community since its beginnings (Laureys 2005; Vanden Daelen 2006, 2008).8,9 Depending on whether the trade or the processing of diamonds is considered, the presence of the

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Jews differs significantly: while 80–90 per cent of the bourse members were immigrant Jews, the largest share of the workers (estimated at 80 per cent) was of traditional Flemish origin (Kinsbergen 1984; Laureys 2005). The strong Jewish influence did not remain without consequences for the institutional framework of the sector: For instance, even though second generation immigrants mostly adopted the French language, Yiddish was to have some influence in the diamond district as indicated by the expressions mazl un brokhe (good luck and blessing) which are still used when a deal is closed (Vanden Daelen 2006). Moreover, working rhythms still nowadays are adapted to the Jewish calendar (the luach) and they are acknowledged by non-Jewish traders as well (for example the diamond bourses are still closed on Jewish holidays like Yom Kippur).10

6

THE NAZI RULE AND THE END OF THE TRAJECTORY

The looming war and the invasion of German troops into Belgium in May 1940 brought about some confusion into the local diamond world. While at first there were some uncertainties whether to stay in Belgium or to move abroad, it was finally decided to relocate the industry in Cognac, France.11 In fact, around 5000 people, most of them Jews, moved there (Laureys 2005). For different reasons, however, the establishment of the refugees in France proved difficult. As a consequence, a new escape wave set in resulting in two types of refugees. A first group moved overseas mainly to the USA, Palestine, the UK, South Africa, Brazil and Cuba and started new businesses there (ibid.; Laureys 2003a) (see also section 7). These refugees often benefited from support from relatives and friends of the Jewish diaspora. A second group decided to return to Antwerp, the more so as many of them were persuaded to do so by the German occupants.12 It has to be mentioned, however, that not all diamond people had fled. Indeed, most of the fabricants and workers of Belgian origin had stayed in Belgium hoping that the Germans would allow their activities to continue (Laureys 2005). All diamond people, whether they had stayed in Antwerp or returned from France were soon put under German military control. Shortly after that, several measures taken by the Germans not only led to a reorganization of the sector but also resulted in a complete discontinuation of the commercial activities in 1942 (Laureys 2003b, 2005): First, intermediaries like brokers were excluded because their business was regarded to be clearly Jewish and to contribute to price increases. Second, only people who had been active in the diamond trade for at least ten years were allowed to

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Table 4.1

Emerging clusters

Members of the Diamantclub (1941–44)

Number of members Number of members abroad

1941

1942

1943

1944

1533 0

699 822

683 1161

339 1159

Source: Own calculations based on data from the Brachfeld Archive (BA 441, balances for the period between 01 January 1941 and 31 December 1946).

continue their activities.13 Third, in 1941 organized raids were carried out in two of the diamond bourses by the Devisenschutzkommando and the Sipo-SD14 (see Vanden Daelen 2008). Fourth, the traders’ stocks were confiscated. Fifth, the Germans removed about 2500 workbenches from the ten largest companies while smaller machinery for about 10 000 workers was left untouched (The New York Times, 7 September 1944; 11 September 1944). Moreover, large numbers of qualified workers were deported to Germany for compulsory labour. The measures by the Nazis culminated in the deportation of 984 diamond people to the concentration camps as the analysis of the deportation reveals. Given the fact that in addition many people died due to enemy actions, it can be assumed that approximately 40 per cent of the city’s diamond dealers and about 15 per cent of the workers were killed during the war (The New York Times, 27 March 1960). The gradual reduction of the trading activities alluded to above is well illustrated by the decrease in the number of bourse members: in 1941, 1533 members were registered at the Diamantclub, the most important diamond bourse in Antwerp in those days; in 1944 only 339 were left. At the same time the number of absent members rose from 0 to 1159 (see Table 4.1). The number of members of the Beurs voor Diamanthandel decreased from 1654 in 1939 to 355 in 1945 (Beurs voor Diamanthandel 1979, 27). Despite missing data it can be assumed that the other bourses (except for Fortunia which did not have any Jewish members) met the same fate. The diamond processing industry also suffered under the German occupation, however, in a rather indirect way: the allies did not want the Nazi regime to take possession of diamonds which were of strategic importance to the war industry and thus had ceased the supply of raw diamonds to foreign countries immediately after the German attack on Poland in 1939 (cf. Jack 1941). Due to the lack of rough stones to be polished, the industry gradually wasted away: from 15 000 workers being active in the sector in 1940, only 2000 workers remained in March 1941 and 1000 in July 1941. A mandatory diamond deposit eventually hailed the end of the industrial activities, too (Laureys 2005).

The re-emergence of the Antwerp diamond district

Table 4.2

83

Number of diamond workers by country before the war and in 1945

USA (without Puerto Rico) South Africa Brazil Cuba Canada UK Puerto Rico Palestine / Israel (since 1948)

Pre-war

1945

350 150 – – – 10 – 200

4000 600 4 2 300 750 1,5 3800

Source: Antwerp City Archive (MA-KAB 1723, letter from Romi Goldmuntz to Camille Huysmans, 25 August 1945 concerning the activities of COFDI).

7

EVOLUTION OF COMPETING CENTRES

Many of the refugees had left Belgium with their stocks trying to resume their activities overseas both in diamond trade and processing. In addition, the rise of the new diamond centres was encouraged by the gradual fading-away of the former main competitor Antwerp due to the reasons mentioned above. As a consequence, the industry had to pass through a development which resembles the stage of ‘shifting centres’ although the underlying reasons for the emergence of the new centres differ from those outlined by Storper and Walker (1989).15 In these years new windows of locational opportunity mainly opened up at two locations (see Table 4.2): in the United States to where many diamond dealers emigrated, the number of diamond workers rose from 350 (pre-war) to 4000 in 1945. Up to 70–80 per cent of the world diamond production was to be found there after the war.16 The share of sales even rose from approximately 75 per cent (pre-war) to 85 per cent in 1948. In spatial terms, New York stood out as the most important centre for both manufacturing and commercial activities. The polishing industry in Palestine (after 1948 Israel) – destination of many Zionist Jews hoping to contribute to the emerging Jewish state – experienced a similar development. Here, the number of enterprises rose from 4 in 1939 to 45 in 1947 while the number of polishers increased from 200 just before World War II to about 3800 after, and to approximately 8000 in 1965 (Szenberg 1973).17 Besides these two countries, the UK gained in importance as a centre for diamond-related activities, too: on the one hand, it became home to some industrial activities, on the other hand,

84

Emerging clusters

the so-called Correspondence Office for the Diamond Industry (COFDI) was established in London by the Antwerp mayor Camille Huysmans and the prominent diamantaires Romi Goldmuntz and Herman Schamisso in October 1940 to support the former Antwerp diamond community during the war (for example by returning diamonds to refugees that had been confiscated by different states) (Laureys 2005).

8 8.1

RE-EMERGING STRUCTURES AS AN OUTCOME OF STRATEGIC ACTION Generating Advantages on the Supply Side

The evolution of the new growth centres was a major threat to the reemergence of the Antwerp diamond district which was desired by some Belgian policy makers and also by people from the diamond sector. Considering the fact that New York and Ramat Gan (Israel) still belong to the most important trading centres in the diamond industry in terms of turnover and employees shows that the new windows of locational opportunity were not of temporary nature and that the individual concerns of the Antwerp diamantaires were completely justified. As a reaction to the growing competition COFDI had started looking for a solution thereby taking some particularities of the sector into account: Since the late 19th century, the diamond industry had been characterized by cartel structures. By merging different smaller South African companies the ‘De Beers Consolidated Mines Ltd.’ was founded in March 1888 controlling a vast share of the produced rough diamonds (the evolution of the diamond cartel is subject to many publications – see for example Carstens 2001; Campbell 2003 – and therefore will only be outlined here). By and by, the company managed to acquire different mines which started selling their stones to a London-based de Beers subsidiary known as the Diamond Corporation Ltd (Dicorp). De Beers also managed to persuade outside diamond mining companies to sell their production via Dicorp, thus sparing them the establishment of an expensive distribution system. As a consequence, the company gained control over about 80 to 85 per cent of the world’s production of rough diamonds.18 Besides that, De Beers also centralized the distribution of raw diamonds through a unique system which was effective until 1979 (Kinsbergen 1984; Legrand 1991).19 Given De Beers’ control over the distribution of rough diamonds, it was important to convince this company to favour Antwerp’s rough diamond supply if the city was to regain its competitive edge again. Several factors, indeed, prompted De Beers to do so.

The re-emergence of the Antwerp diamond district

85

During the war, approximately 80 per cent of the world’s raw diamonds were extracted in the Congo which at that time was a Belgian colony. The majority of the stones were industrial grade (Kinsbergen 1984). The mining was carried out by the Forminiere company (Societe Internationale Forestiere et Miniere du Congo) with the Belgian government being its main shareholder. Forminiere distributed its production through De Beers’ London operation, based on a contract dated 1926 (Laureys 2005). In 1942 this contract had to be renewed. The Belgian government was very keen on the restoration of the diamond district once the war was over – it had accounted for 6 per cent of the Belgian exports before 1940 – and successfully negotiated the inclusion of a clause into the new contract specifying that large amount of cuttable raw diamonds should be reserved for the post-war diamond industry in Belgium. This matter had been brought to the Belgian government’s attention thanks to COFDI’s relentless lobbying. In return, Forminiere committed to supply the allies at advantageous prices hoping that this might stimulate a continued demand for industrial diamonds after the war. Last but not least, the mentioned measures only were possible as De Beers was interested in a long-term binding of Forminiere in order to keep its influence on the diamond market. As a consequence, the cartel agreed to compromise with its contractual partners (Laureys 2005). In addition to these measures being highly important for the reemergence of the district in terms of an initial spark,20 COFDI also succeeded in convincing De Beers to reduce or even stop the rough diamond supply to Brazil, Mexico and Cuba – where only well- established companies would be supplied. In addition, the supply to Palestine and to India was temporarily ceased for strategic reasons: it was feared that Germany could get a hold of stones from Palestine through Syria and Turkey. Japan could have imported stones from India (ibid.; Jack 1941) (Laureys 2005). All in all, it becomes apparent that through its strategic action COFDI was able to contribute to closing the window of locational opportunity by securing a brilliant post-war position for Antwerp in terms of supply and thus outnumbering the other centres. As the other locations did not hold any mines in pledge, this explains why Antwerp had a better negotiating position with De Beers and why similar decisions could not be made in the newly emerging centres. 8.2

Recovery of Labour

The worldwide dispersal of the diamantaires from Antwerp was regarded as another major problem in view of the potential attempt at resuscitation

86

Emerging clusters

of the cluster structures. Against this background, yet during the war, COFDI started to encourage the return of the fugitives through material and psychological incentives. Already in 1941, Goldmuntz and Huysmans had tried to convince the London-based Belgian government in exile to contact different organizations related to the diamond industry, especially the ones located in New York in order to trigger a friendly attitude towards Antwerp. In addition, the organization implemented several measures aiming at a quick recovery of labour after the war. In principal, they can be classified into two categories. The first one consists of general reparation measures such as the granting of transport benefits, Belgian nationality, visas and compensation for war damages. Personal assets were repatriated, and apartments and furniture were resituated to their pre-war owners. Not unimportantly the fight against anti-Semitism was of particular concern to Belgian and Antwerp authorities, too. The second category of measures was meant to rekindle business activities in the diamond sector: supply of rough stones, fiscal and financial advantages and support from the authorities when establishing business contacts. While at first the refugees tended to reject any thought of going back, many of them changed their minds with the first allied military successes in 1942 and with COFDI having successfully achieved to restrict the rough

25000 20000 15000 10000 5000

1954

1953

1952

1951

1950

1949

1948

1947

1946

1945

1944

1943

1942

1941

1940

1939

1938

1937

0

Note: The data were based on information provided by the compensation fund. As they refer to the entire Belgian diamond industry and are dated as of 31 December for each year they deviate partly from the details given in the text. Source:

Michielsen (1955, 87).

Figure 4.1

Number of diamond workers in Belgium

The re-emergence of the Antwerp diamond district

87

diamond supply to the new centres (see above). Although more and more diamond workers came to the district after the retreat of the Nazis (see Figure 4.1), convincing them to do so must be considered as one of the hardest challenges with regard to the recovery of the former structures (Vanden Daelen 2008) and a quick rebirth of the structure was all but certain. The most important reasons for the initial retention to return even after the Nazi retreat were twofold (see Laureys 2005): first, it was for fear for discrimination and latent anti-Semitism. Second, the business opportunities were difficult because (a) the diamond exchanges were occupied by allied troops (until 1947) and needed to be made available to resume trade; (b) the access to raw diamonds in the early post-war days was limited and (c) polishing plants had been damaged and were only partially operational. Generally speaking, the mentioned aspects made many Jewish diamantaires wait for the Antwerp trade to gain strength again

Share of Migrants by Provenance (1948–1965) >0 –