The wealth of regions

Futures, Vol. 27, No. 5, PP. 505-526, 1095 Copyright @ 1995 Elscvier Science Ltd

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THE WEALTH OF REGIONS

Market forces and policy imperatives in local and global context

Michael Storper and Allen J Scott

The article opens with an extended commentary on the continued-and future-significance of regional development issues, even in a rapidly globalizing world economy. The bases of regional economic activity are analysed in terms of network structures of production, technology systems, local labour markets, and regional business cultures. A policy framework for approaching tasks of regional competitiveness is described, with special reference to first mover advantages, resource mobilization, problems of regional coordination, and institution building in general. A brief case-study of some actual policy responses to the economic crisis of Southern California in the early 1990s is presented.

Imagine a world where magic carpets existed, providing instantaneous and costless transportation of goods and persons to any point on the globe. In this world, goods and persons would come together as needed, without respect for proximity. A Brazilian banker could live in Rio and go every day to work in New York, while the children went to school in the morning in Paris and returned home for the afternoon at the beach with their friends. Groups of scientists collaborating closely together on a project could come together regularly in their laboratory from residences all over the world. Factories could serve global markets, on command, instantaneously. A parts supplier in South Bend could deliver, just-in-time, to a client factory in Korea, every half-hour or hour. In other words, any kind of community of interaction would

Michael Storper is Professor of Regional and International Development, School of Public Policy and Social Research, University of California, 405 Hilgard Avenue, Los Angeles, CA 90024-1467, USA (Tel: + 1 310 825 2718; fax: + 1 310 206 5566; e-mail: mstorper@?gsaup.ucla.edu). Alien J Scott is Associate Dean of the School of Public Policy and Social Research, and Professor of Geography, University of California, 405 Hilgard Avenue, Los Angeles, CA 90024-l 467, USA (Tel: + 1 3 10 206 4417; fax: + 1 310 825 1575; e-mail: [email protected]).

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be possible without propinquity, including the most complex, irregular, uncertain or spontaneous kinds of interactions.

Why regions are important as communities of economic activities

Since magic carpets do not exist, however, these interactions remain impossible. A factory in South Bend may be able to produce for a client in Korea, but if the client insists on just-in-time deliveries several times a day, the South Bend firm will find it necessary to open a factory nearby.’ When scientific projects require daily face-to-face interaction, the scientists involved must all live in the same area-and many scientific projects do require such interaction, even in the age of long-distance data transmission and teleconferencing.2 If our Brazilian banker really wants to work on Wall Street every day, living in New York will be indispensable. No matter how advanced existing or foreseeable technologies of transportation and communication may be, we are very far indeed from freeing all forms of interaction from the necessity of propinquity. Distances still matter for many of the most important kinds of transactions.

Virtually all economic and social processes are sustained by transactions, by which we mean the transmission and exchange of information, goods, persons and labour. Consider a social process such as the formation of an industrial culture, ie the emergence of a community of economic actors with shared know-how and practices and common norms of behaviour. Any such process necessarily entails regular and sustained exchanges of information between the individuals involved. Culture formation depends on (though is certainly not fully explained by) a structure of transactions. Many important economic processes are similarly rooted in transactions. Market exchange, for example, depends on transactions between sellers and buyers. Manufacturing systems also comprise a host of transactional activities, between producers of a particular good and others who supply inputs of materials, components, information and services, or between managers within a firm and workers on the shop floor. Labour markets, too, involve multiple transactions. Information about job opportunties must be diffused, workers must engage in search, job applicants evaluated, and individuals hired.

A great deal of what goes on in economic and social life may thus be described in the analytical terms of transacting. This does not imply, as some might assume, any necessary definition of this activity as a system of pure market relations; on the contrary, transactions can be underpinned by a virtually infinite variety of market, non-market and hybrid structures (involving, for example, spot exchange, short-term or long-term contracts, asymmetrical power, anonymity, tradition etc).j Beginning with the claim that many important economic and social processes rest on transactions simply provides a point of entry from which to enquire into the different qualities and effects of their constitutive order.

We deal here with one major effect of transactions on the nature of economic communities, namely, their spatial extent. Transactions have a wide variety of attributes which-in the absence of magic carpets-impose constraints on the geographical scale at which they may feasibly be carried out. In very general terms, the greater the substantive complexity, irregularity, uncertainty, unpredictability and uncodifiability of transactions, the greater their sensitivity to geographical distance. In all these circumstances, the cost of covering distance will rise dramatically and in some cases, no matter what the cost, the transaction becomes unfeasible at great distance. In contrast, the less frequent a set of transactions, or the more substantively

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simple, codifiable, certain, predictable or regular they are, the less they tend to be hampered by geographical distance.4 Above all, when complexity and frequency are reduced, the possibility arises of carrying out transactions via routinized cognitive interactions or frameworks using standard transportation and telecommunications technologies. Thus, we find transactions ranging from the virtually costless, instantaneous, global transmission of certain kinds of information or financial capital, where distance forms virtually no barrier, to those that have great qualitative complexity and high spatially dependent costs. The latter state of affairs applies to a wide variety of cases: the group of scientists working on a new frontier technology; the manufacturers and subcontractors in an information-intensive central city garment industry complex; the customer who expects fresh bread from the bakery in the morning; the student who needs frequent contact with a particular professor.

Thus, different kinds of transactions- and the communities that congeal around them-occur at different geographical scales. These range from the highly localized (household, neighbourhood), to the regional, national and international levels. Moreover, any purely local community will typically have a mix of internal and external transactional relations shaping its form and locational characteristics. For example, an R&D team in a large manufacturing firm constitutes a tightly interlocking community at the workplace, but one that is likely also to have many different sorts of external contacts with other similar communities in the rest of the country and perhaps the world.5 Each level of transacting is resolved at a different geographical scale, depending on the characteristics of what is being transacted between key persons.

At the first level we are dealing with a community which coalesces around frequent, repeated transactions among colleagues, probably having a significant degree of exploratory, not fully codifiable information development and interpretation. Relations here often depend on spur of the moment contacts, which-if they are to be successful-rely on confidence between persons in developing and interpreting the information that is essential to innovation.6

At the second level we find a community of occasional contacts through professional networks, consisting of structured and routinized professional associations and activities (regular, long-distance meetings and activities of professional communities), and occasional unroutinized contact around specific issues, usually of a non-repetitive character (the workshop or consultation in a spatially dispersed network).’ This logic could be extended to characterize a wide variety of the organizational forms we find in modern economies, in production, R&D, labour markets, and in the geographical structure of institutions and government.

The factors that give rise to geographically defined communities of transactors- ie to the spatial distribution of economic activity at local, regional, national and international levels and their interrelations-are of course subject to development and change. The technology of transacting itself may change (eg by improvements in transportation or telecommunication systems), altering the existing spatial scales of feasible transacting. At first glance, it might appear that the direction of change is one-way, from geographical constraint and localization to the lessening of such constraint and delocalization (or globalization). But there is powerful evidence that changes in the technology of transacting are sometimes outweighed by the creation of new networks of transactions that are highly sensitive to geographical distance by virtue of their substantive complexity, uncertainty and recurrence over

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time. One example of this is the effect of recent advances in telecommunications and

information technologies on the financial services industries.8 Such technologies have indeed greatly extended the market areas of firms providing financial services and the geographical scope of their intake of money and information. But they have also led to new rounds of specialization, effectively creating new activities (specialized financial instruments, market-sensitive services, international currency arbitraging) and new competitive pressures such that vast new areas of substantively complex, irregular, uncertain and extremely time-dependent transactions have been created. These transactions appear to be highly sensitive to distance, as is suggested by the localized growth of the most advanced parts of these industries in New York, London and Tokyo.g The post-Bretton Woods financial services industries of the world have emerged, through changes in their transactional structures, on the basis of both global networks and reinforced regional communities.

Localized or regional economic communities, moreover, have evolutionary dynamics that attach to the places in which they develop. Within local communities of transactors there are feedback relationships from participation in a system of activities to the further development of that system. One example of such feedback is the central city garment industry complexes that exist in some of the world’s major metropolitan areas. In these places, intensive and recurrent transactions link firms to each other and to the community of designers and fashion artists on whom they depend. In turn, the participants in the system-designers, sewing contractors, buyers, workers-engage in localized learning through their exposure to other participants in the system, via the information that circulates among them.“) The design community of each of these centres tends to diffuse information about certain kinds of fashions and not others-thus, for example, the very different look of clothing produced in Paris as compared to that in Los Angeles. Local practices, rules, and institutions inform producers and their workers about what is appropriate and likely to be successful in the regional community of transactors;” hence, for example, labour practices differ in subtle ways between Paris and Los Angeles, and different skills develop (Parisian producers are more experienced in silk and wool, Los Angeles producers in cotton and new sports fabrics).

In the case of learning-oriented production sytems, the transactions that tie the system together can rarely function like true markets. Unlike transactions of standardized and substitutable goods, factor inputs and information, transactions associated with certain kinds of learning involve the development and, perhaps more important, the mutually consistent interpretation of information that is not fully codified, hence not fully capable of being transmitted, understood and utilized independently of the actual agents who are developing and using it. Stated another way, when the relevant knowledge or skills have cognitive dimensions that are highly specific to the individuals involved, the transaction becomes concrete, and has qualities that cannot be divorced from its existence as a real relation.” These relational qualities of transacting may, in some cases, be embedded in large organizations and carried out at great distances. But many, in fact, are highly localized, including those internal to large firms, because their relational content cannot be sustained over large distances.

Agglomerated regional industries complexes thus remain important foci of economic activity and will remain so as long as magic carpets are not available as a technology of transacting. Moreover, even as improvements in transacting technologies allow certain activities to be extended over greater geographical


distances, the very dynamic of modern industrialization is to re-create networks of transactions that are highly sensitive to distance. The regionalization of production systems is intensified by localized technological learning processes and by the locational inertia that is created by the accumulation of a mass of physical capital at particular locations. In this manner, regional industrial agglomerations continue to be a significant (and much underrated) element of the landscape of capitalism, even in a world of steadily globalizing economic relations.

In what follows, we argue that regions are one of the essential bases of industrial organization in the emerging global economy. Yet, like all other economic systems, regional economies face certain endemic failures and crisis tendencies in the global economy, and those regions that have mitigated the worst effects of these shortcomings by appropriate forms of collective action and institution building seem often to have enjoyed heightened competitiveness. Accordingly, in the construction of the economic institutions of capitalism at the end of the 20th century, and at the beginning of the 21st, such regional institutions will almost certainly play a central role in determining which regions move forwards and which will fall into decline, and they will have significant impacts on their national economies.

Dimensions of regional economic activity-and some tasks for industrial policy

Neoclassical economics sees markets and competition alone as guaranteeing economic order and efficient resource allocation, and policy intervention as being economically irrational except where strict and narrowly defined forms of market failure appear. This view has been subject to a series of critical onslaughts, for three main reasons. First, and most obviously, markets and competition are not socially decontextualized activities;13 on the contrary, they are decisively shaped by prevailing institutional structures and norms (the law, the educational system, managerial ideologies and capacities, the structure of labour relations, levels of inter-firm trust, forms of corporate organization and so on), and in this regard, regions often differ markedly from one another even when their sectoral composition is similar.“’ Second, many production systems are endemically unstable both fuctionally and temporally, in part because information is not the universal free good that it is presumed to be by neoclassical theorists, and in part because social interests can never be fully reduced to the isolated utility-maximizing individual; in practice, interests are also socially structured (by occupation, firm, sector, class, nation and so on) and as such they are frequently in political collision with one another.15 Forms of economic organization that are not accompanied by effective means of collective regulation and coordination are thus likely to be unstable and short-lived. Third, regional economic systems are typically the sites of potent external (ie agglomeration) economies that flow out of the organizational dynamics of the local industrial complex, and that exist as non-market spillover effects.‘” These external economies reside in the essential character of any regional industrial complex as a collective of economic activities, and as such they are appropriate, indeed necessary objects of public policy. We shall now elaborate four areas in which this collective character and tendency toward failure are present in regional economies.

Inter-establishment industrial relations and networks

The networks of transactional interrelations that are to be found in any regional industrial agglomeration are almost always of immense complexity. They vary

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according to functional form, durability, spatial range and substantive content. Such transactional relations, however, frequently fail under rules of market order. Critical breakdowns of information exchange may occur where one party holds privileged information that is not accessible to the other. For example, if a subcontractor making subassemblies chooses to include a certain proportion of defective parts that can only be recognized after the final product has been in use for a considerable time, then the subcontractor holds an information advantage over the principal firm, Failures of trust underpin and exacerbate this situation, for in the absence of formal or informal means of ensuring that all parties to a given transaction are likely to abide by an explicit set of rules and standards, it becomes rational to hesitate to do so oneself.” Such a state of affairs can only be avoided where manufacturers are willing to give up some of their autonomy and enter into coordinated relations with other manufacturers, which means that the production schedules and transactional relations of each producer become increasingly intertwined. Japanese just-in-time processing networks represent probably the most advanced version of this method of production, and in Japan, it clearly works only because of credible, trustworthy agreements between all participants.18 In practice, just-in-time manufacturing systems are usually something considerably greater than simply finely-tuned transactional networks; they are also the basis of collaborative forms of manufacturing with strongly developed mechanisms of information exchange, technology transfer, and pooling of resources to the benefit of all participants.”

The general task of creating competitive advantage for regional economies thus involves in part the objective of fostering effective interestablishment industrial relations and networks, to impede transactional failure, and to improve dynamic competitive advantage through effective interfirm relations.20

Technology and practical know-how

Technology has been widely viewed by students of industrial systems as something embodied in a portfolio of blueprints out of which manufacturers select a profit-maximizing combination of machinery, equipment and products. Technological progress in this view consists largely of additions to the portfolio and improvements of existing technologies by way of formal and planned research and engineering efforts; for example, superconductivity, high definition television, robust batteries for electric cars, more powerful computers, are all clearly on the research agenda as predictable sources of commercializable processes and products.

This is certainly-in so far as it goes-an accurate description of many forms of technological choice and change. It also helps us to see why it is that public agencies and public money are so frequently called into play in support of technological research.2’ Thus, despite the degree of commercial protection that is offered to technological innovators by patenting arrangements, it is in fact extraordinarily difficult for private individuals and groups to appropriate fully the economic benefits of any advances in knowledge that they may bring about.22 Knowledge is a leaky phenomenon, and as a result, firms tend systematically to underinvest-relative to socially optimal levels-in basic R&D.23 In order to counteract this market failure, governments often step in. R&D policies may be formulated to provide basic technologies for certain sectors, and this may be complemented by a regional component. One important expression of this latter phenomenon consists of publicly funded innovation centres and R&D consortia focused on projects that have particular relevance to local economies (eg the French network of Centres R@ggionaux

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d’lnnovation et de Transfert de Technologie, or the Japanese kohsetsushi ie regional technology centres).

However, the view described above represents only a very partial and incomplete characterization of the ways in which industrial technology is constructed and moulded. By considering only the most conspicuous manifestations of the phenomenon, it overlooks the ways in which practical knowledge and technological know-how are constituted as tangled networks of ideas and practices and the myriad small day-to-day ways in which these networks grow and change. These networks frequently overlay particular kinds of regional industrial complexes so that regions become repositories of specialized industrial skills and capabilities. From this point of view, technology is not something that is universally available, but rather is embodied in sets of place-specific (and transactionally rooted) relationships.

Let us examine this notion in more detail. Much technological change, far from being planned and carried out in large increments by R&D teams, actually occurs as a series of accumulated small-scale events in highly informal contexts.24 One of the most important triggering mechanisms for this process occurs in the transactional interrelations between different manufacturing establishments where, in attempts to find a match between output configurations on the one hand and input needs on the other, hitherto unforeseen opportunities for innovation become apparent. Thus, a computer manufacturer’s need for a semiconductor chip with some peculiar performance feature may stimulate a chip producer to make a small but decisive improvement in process or product characteristics. This sort of informal learning and technological change will obviously be accelerated where producers of particular types are locked together in dense, active, transactional systems where information flows backwards and forwards with a high level of fluidity.25 These remarks imply that innovation is likely to be blocked where transactional failures occur, but particularly intense in regional industrial complexes where the transactional system has a dense and trust-based collective structures.

Local labour markets

Just as regions become repositories of practical information and technological know-how, and foci of transactions-intensive production systems, so also are they-again in the absence of magic carpets- places in which dense local labour markets come into existence. That is, industrial regions are places marked above all by an intense daily round of movement between home and work, and by ongoing search activities as unemployed workers seek jobs, and as employers seek new workers.26 Information is the critical ingredient necessary to the operation of local labour markets, though here again there are strong impediments to its free flow, and hence to the effective matching of individual workers to individual jobs. This is an area where publicly funded agencies operating as information exchange centres can greatly boost the overall efficiency of the regional economy, especially where their job matching programmes are carefully tailored to respond to local conditions.27

Public support is also essential if appropriate levels of worker education and skill acquisition are to be achieved. In a world marked by considerable uncertainty, workers will tend to limit investment in improving their own skills, for there is always some probability that such efforts will fail to be adquately rewarded. In practice, agglomeration mitigates this problem to some degree because the denser the pool of potential employers, the greater the probability that an adequately rewarding job will be found, although agglomeration can never resolve the problem with finality.28

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Equally, employers will tend to underinvest in training and retraining their workforce, for they can never be sure that the workers in whom they invest will remain on their payroll, especially in large agglomerations where there are abundant opportunities for alternative employment. Thus, in labour markets where training is not publicly subsidized, it is likely that an undersupply of appropriate job skills will occur.

Construction of place-specific economic culture and order

Once a regional production system and its associated complement of workers has come into being, it develops a specific character inscribed in informal rules and conventions that reflect its acquired forms of industrial specialization and past historical experience. This remark may be exemplified by reference to the collective character of places like Manchester or Sheffield in the 19th century, Detroit or Pittsburgh in the 195Os, or Silicon Valley,2g Orange County,30 and the Third Italy3’ today. The peculiar sociocultural context of such places helps to sustain their economic activities by offering many forms of coordination and acculturation.32 Thus, the context helps to inculcate and facilitate relevant patterns of worker socialization (both manual and intellectuai); it helps to maintain in the local community a sense of what constitutes good work, appropriate materials and quality of final outputs; and it directs budding entrepreneural talents to forms of business activity that are most likely to succeed in the local area. By the same token, the sociocultural context is a set of habits and attitudes, customs, forms of tacit lore, and local business intelligence, that is a constant resource for all agents operating in and around the local economic system. Thus, regional industrial culture can play a strongly potentiating role in local economic development.

Culture and its associated institutions, however, may also shackle a region’s ability to adjust effectively to certain kinds of competitive pressures.33 This point is illustrated in a recent comparative study of the jewellery industry in Los Angeles and Bangkok.34 In Los Angeles, the jewellery industry, with its free market culture, is locked into a cost-squeezing configuration in which low wages and a general region-wide failure to develop a reputation in this line of production or to acquire any sort of recognizable high-quality design cachet have meant that the industry has languished over the past decade or so. In Bangkok, by contrast, the self-conscious collective pursuit of competitive advantage by associations of manufacturers and government agencies-eg by setting up training institutions, design centres, periodic trade shows, as well as by importing skilled labour to train local workers-has now made the Thai industry one of the world’s most competitive and rapidly expanding. Note that levels of trust between jewellery producers in Los Angeles and Bangkok are high, although only in the latter case has the industry been mobilized so as to create any real dynamic of quality improvement and growth. Thus trust, important though it may be for effective interfirm relationships, is not in and of itself a guarantee of success. Institutional sclerosis consequent on certain forms of regional economic culture is a major problem for local economies, calling for collective action to push the region towards new development trajectories.

Regional institutions and industrial policy

In recent years, the successful economic performance of certain regions with well developed cooperative and institutional structures has prompted inquiry into policy

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lessons that might be gleaned from these cases. Much of the preceding theoretical framework is a broad synthesis of what has been learned from the study of such regions. Concomitantly, a new ‘heterodox’ economic policy framework has emerged in which significant dimensions of economic policy at large are being reformulated in terms of regional policies. This framework favours approaches that are (a) context-sensitive, ie concerned with the embeddedness of industrial practices in specific contexts and regions, (b) production-systems-oriented rather than firm-oriented, and (c) directed towards the ongoing adjustment capacities of regional economies, rather than once-and-for-all implementation of so-called best practices. Its keywords include many that have become familiar over the past decade in the vocabulary of economic geography-networks, flexibility, organizational decentralization, vertical disintegration, cooperation, local training programmes, technopoles, learning systems, and so on.35

This policy framework is not, however,inherently about networking, flexibility, localism, or small firms for their own sake; these are only means to an end, which is adaptive technological and organizational learning in territorial context. The proper substantive goals of the policy framework are:

(a) for traditional or small-scale or intermediate goods, the continuous adaptation of products and processes, especially though product differentiation or shifts up the price-quality curve, so as to respond to the ever-present threat of entry by competitors; and

(b) for scale-intensive or new technology products, continuous outward expansion of the technological frontier, and detailed small-scale innovation within the bounds of that frontier.

These substantive purposes determine the configuration of policy measures appropriate to any particular case.

We now outline the key elements of this framework and the analytical rationales for specific policy interventions. Following this exercise, we return to some of its lacunae, and the dangers that seem now to be emerging as theory is being transformed into active policy.

Infant industry and the importance of an early start

Infant industries are those based on new and experimental kinds of products. In the early 196Os, for example, semiconductors represented an infant industry, just as aviation was in the 192Os, and automobiles in the last decade of the 19th century. Biotechnology, alternative-fuel vehicles, and advanced environmental clean-up technologies are infant industries today. These are all areas in which the probability of generating many new products is high, yet product configurations have not yet settled into an identifiable technical trajectory.36 The high levels of openness in these cases has to do with the need for additional technoligical developments before products can be fully commercialized. Considerable risk and uncertainty exist for potential producers in these nascent sectors. As a result, there is a tendency for risk-averse potential producers to wait before committing themselves, until a clearly commercializable technology is in sight. The collective effect of such waiting, however, may create a vicious circle, where everyone waits for everyone else to move first, and the overall rate of the industry’s development is thereby retarded. By the same token, regions that could potentially develop a successful new industry may find that a delayed start (especially when another region has moved ahead

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before them) locks them permanently out of a promising development trajectory.

This common free rider problem, however, stands in stark contrast to what we know about the potential benefits of getting an early start in an infant industry. Specifically, those firms, regions and nations that manage to establish an infant industry with superior product technologies well in advance of their potential competitors, often enjoy major economic pay-offs to their effort. This is true in many ways. In the early years of development, their products often have high earnings because they are rare and there is little competition.37 More important, by achieving an early start, even at high cost, production complexes build market share and hence scale and scope economies; this, in turn, permits greater production efficiencies and frequently promotes technological learning effects that allow the early starter to prolong initial advantage and retain a large market despite the subsequent entry of numerous competitor regions and nations.

he-competitive and enabling R&D. It follows that institutions should, in some cases, be used to overcome the collective action failure that impedes an early start. Such institutions have, as their central mission, the reduction of risk and the elimination of the dysfunctional waiting behaviour it provokes. Risk may be reduced in two principal ways by institutions. They may support pre-competitive and enabling R&D activity, complementing private capital with public funds, or pooling private capital so as to distribute risks. While the danger always exists that such efforts will be used to pick inferior technologies-the same risk that impedes private sector action in the early days-this can be offset by constructing institutions that push for development but at the same time encourage competition between different technologies in the same infant industry.38 There is no reason why infant industry promotion should rely on exclusive, top-down technological choices-which does create the risk of lock-in to inferior designs.

Stimulating markets. The second goal of institutions in promoting infant industry is to shorten the time between technology development and production, with the goal of building practical competencies and scale as early as possible. Here again it is appropriate in some cases to reduce private-sector investment risks, in the areas of supply and demand. It may be asked, with respect to the latter, why a market should be stimulated early on. The answer is that consumers, like producers, tend to be risk- averse. The unproven character of new goods, and their higher costs, discourage early consumption. Yet, if the industry has the potential to grow faster in a region or country given an early start, then market stimulus programmes can contribute positive long-term increasing returns to the region. Market incentives are hence often appropriate institutional responses to the problem of stimulating an early start in infant industries.3g There are, admittedly, few examples of such institutions at the subnational regional level; but there are many at the national-in French telecommunications and high-speed trains, American aerospace products, Japanese semiconductors, and Korean steel and automobiles. Much more needs to be known about the conditions that separate success from failure in getting an early start, but the basic notion is extremely relevant for regional policy makers.

Mobilizing resources for regional economic development

It was seen above that markets may fail to coordinate transactions sufficiently to ensure regional economic development. This problem was noted in several areas:

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the development of technologies in existing industries, the training of labour, efficient matching of workers and jobs, and the aquisition of a place-specific culture and order. Overcoming such problems may require specific public institutions. Let us take each in turn.

Regional technology centres for incremental innovations. Firm strategies do not always correspond to developmental optima for regional or national economies. While these firms may seize opportunities rationally, this may involve relinquishing or reducing technology development in their existing product lines. From the standpoint of the regional economy, such a turn of events can have quite negative impacts. Under these circumstances, therefore, it may be in the region’s interest to try to maintain the commitment of firms to the improvement of technologies that are particularly important to existing regional production ensembles, or that may involve learning-based extensions of the local productive apparatus. The costs of so doing may be relatively small-just enough to compensate for the gap between existing firm activities and socially targeted levels. Relatively small public investments can have large effects on regional technology development to the extent that they are made in a strategically competent fashion. Indeed, given the short-term tendencies of firms to exit certain markets, such investments can be efficient over the long-run provided that it enhances positive spillovers and learning effects.

For these reasons regional institutions can promote efficient levels of technological performance in localized economic clusters. Regional technology centres are one device for carrying out this task. Their mission is the advancement of technology in a sector or in a cluster of technologically related sectors in particular regional complexes. They may stimulate technology (a) by identifying priorities and encouraging private-sector collaboration, or by providing technology research and advice to firms, somewhat in the way that the US agricultural extension service does for farmers, and (b) by mobilizing and coordinating the application of public funds to complement or bootstrap private-sector R&D collaboration. There are already successful examples of such centres, most notably in Italy and Germany, where they assist firms in sectors where incremental product innovation is particularly important4’

Labour training. Labour training to ensure the provision of adequate levels and qualities of skills for regional economic activities is another public good often not produced efficiently by the market. As we noted, markets fail because firms may attempt to become free riders on other firms in the context of regional labour markets, especially when high levels of flexibility and labour turnover are involved. They also fail in the case of infant industries because of the risk-avoiding behaviour described above. Even in the absence of these effects, however, there is a specifically regional role to be played in the training of many kinds of labour, particularly in the case where needed skills are not specific to an occupation or industry, but take on additional characteristics reflecting the regional production complex in general.4’

In all these cases, regional institutions to provide, maintain and adapt labour skills can enhance competiveness. These may take the form of industry training centres, where firms subscribe to the services of any given centre, which in turn provides training that is not only perhaps better than that offered by individual firms, but lower in cost per worker. Such centres have the advantage of being capable of forward planning; by carrying out research on changes in labour requirements, they

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can continually update training in a more self-conscious way than can many firms, especially those of small and medium size.

/n&try service centres. Industrial competitiveness at the regional level can also be enhanced through the creation of industry service centres. In the case of sectors where the participation of small- and medium-sized firms is great, firms may lack the financial resources to carry out a variety of functions internally in an efficient manner. Small and medium-sized firms, for example, frequently lack the ability to perform systematic market research.“2. They usually cannot carry out research on foreign markets or fund market representatives abroad. Thus, in addition to specific regional institutions focused on technology and labour training, there may in some cases be a need for service centres that give firms access to technology and marketing information they cannot afford to provide for themselves.

These service centres are most appropriate where there are significant populations of small and medium-sized firms that are unable to internalize certain costs of doing business at a minimum feasible level. That said, in regions with large, highly visible ‘champion’ firms, there is frequently a tendency to ignore the needs of their supplier firms. The overall competitiveness of even the biggest firms, however, may be enhanced by strengthening their external supplier bases. Moreover, such assistance may help supplier firms to become more diversified and better at adjustment, thereby strengthening their long-term contibutions to the regional economy (especially through spillovers into complementary activities).

We have paid special attention to production systems that are marked by high levels of flexibility and the labour turnover that is often associated with it. Under such circumstances, it is imperative that workers-especially those with high skill levels and long training times-be efficiently matched to jobs. In the absence of efficient labour search and hiring processes, private and social costs may rise, for example where there is high drop-out of skilled workers from the labour market, with attendant social loss of their training investments, or where firms start to hoard their labour. Industry service centres can encourage the efficient flow of information between firms and workers in specific regional clusters of activities. By enhancing information flow, they reduce the transactions costs and frictions of flexible labour markets and sustain more efficient production and the realization of full labour productivity potential.

Regional development funds. All these mission-specific institutions may, in turn, find their efficiency bolstered when they are overarching institutions at the regional level capable of looking forward, pointing the way, and boostrapping early efforts. These tasks are different from those associated with institution building in established industries, in that no secure industrial base may yet exist and the local infrastructure of institutions is likely to be thinly developed. Regions thus need institutions whose role is specifically to look forwards and to begin to make things happen so as to overcome tendencies towards institutional sclerosis in the existing economic system. Regional development funds are one way to accomplish this; they are pools of capital that can be invested in seed projects before there is significant private-sector participation. They may also be applied to testing out specific new forms of infrastructure in an experimental way, as well as to providing early funding for pre-prototype tie pre-infant industry) development of products, ideas and organizations. Their mission is limited and clearly demarcated from other forms of public-sector planning and infrastructure provision, and designed to ensure that such

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not-yet-programmatic initiatives are taken and opportunities are not missed. These are just a few of the ways in which regional institutions can be set up to

mobilize resources for specific purposes where neither the market, nor local government as we commonly know it, is likely to do so. Already, indeed, selected regions in Europe (eg Baden-Wtirttemburg, Emilia-Romagna) and Japan have begun to put into place successful institutions for achieving these purposes.

Coordination and steering of regional economic systems

One of the paradoxes of a market system, as pointed out above, is that it may fail to coordinate decentralized production among many different firms efficiently. In this case, institutions devoted to promoting higher levels of collaboration can enhance the functioning of the regional economy.

Trust, confidence and cooperation. At the most fundamental level, producers sometimes engage in mutually destructive forms of competition in production systems.43 In cases where information sharing or confidence are required in interfirm relations, institutions can provide the circumstances for more trustful interactions between firms. Confidence building takes place not by regulation but by increasing information flows such that mutual knowledge enables producers to evaluate each other better.44 Producers can thereby develop common grounds of interpretation such that complex non-contractual and contractual relationships are understood more clearly and commonly. Reputation effects are also thereby reinforced, and they circumscribe tendencies towards violation of trust and hence increase the overall reliability of interfirm relationships.45 In the absence of high levels of trust, industry associations may sometimes provide assurances of fiduciary standards among their members, as well as mechanisms for policing those standards.

Political coalitions. Coordination is not only important at the level of interfirm relations in established industries. Most institutional tasks described above also depend on coordination of relevant political actors at the regional level. That is, political coalitions are needed that allow participants to realize projects in which all will gain, but that cannot be realized in the presence of free rider problems or institutional sclerosis. This is an area in which regional economic councils can play a role. They do not supplant the regulatory and planning activities of government, or those at the sectoral levels in private industry, but rather bring together the relevant actors-in industry, labour, the community and government-to focus attention and educate their members, and thereby to attenuate the risks of moving forwards into new products or processes faced by any particular firm or industry in the regional economy.

The objective of such coalitions is to be more encompassing than those that form around specific industries or occupations, in two principal ways.46 By identifying priorities and shoring up support for them across the spectrum of relevant actors within regional agglomerations of industry, they serve to help such actors to make necessary connections, to direct attention of political officials, and to increase confidence that the problems encountered by any particular agent will find a climate in which positive responses are likely to be forthcoming. Moreover, such coalitions are not bound by the frontiers of existing sectors or existing lines of business; they are precisely designed to be able to help actors redefine the nature of what they do in a way that ensures overall coordinated decision making and action so that individual

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miscalculation is reduced and agreed on regional goals secured.

Regional laboursyndicates. Traditional forms of union organization may be unsuited to the regional realities we are describing here. In the US context, unions are generally organized around a sector or around an occupation (industrial unions and craft unions). Union locals are organized along these lines and affiliated with similar locals on national basis. The regional agglomeration of economic activity, however, involves mixes of sectors and occupations that correspond only minimally to the existing jurisdictional structure of the labour movement.47 This makes it extremely difficult for unions to act coherently with respect to any regional economic system, whether it be in participating in training, in negotiating working conditions and wages, or in harmonizing changes in labour practices to the changing shape of markets and technology. This incommensurability has weakened the ability of labour unions to be participants in the shaping of new regional economic systems.

The only organizations that correspond in any way to such regional economic systems in the USA are what remains of the county labour federations, but here the problem is that these were alliances of unions designed primarily to extend reciprocity between unions in the case of strike actions, not federations designed to represent broad groups of workers in participating in the process of economic adjustment. In Germany, there are labour federations at the level of the Ldnder that represent groups of workers in different occupations and industries in the several ways referred to here: eg setting general regional wage and working conditions targets, negotiating labour training goals, and coordinating the latter with general agreements about needed directions for change in the regional economic base.48 Such institutions of cross-sectoral and cross-occupational labour representation-ie regional labour syndicates-may be a necessary new level of labour organization, suited to the requirements of agglomerated industrial complexes undergoing continual organizational and technological adjustment.

Inter-regional coordination. In a world in which regional economies are tending to intensify their intra-regional tissue of industrial institutions while simultaneously becoming ever more deeply locked into a system of inter-regional competition, the problem of coordination extends well beyond the region as such and out into the wider inter-regional realm. Take the case of a region that hopes to become the dominant focus of a new technology and plans to invest significant amounts of public money in fostering an infant industry. If other regions also move in the same direction, there is likely to be considerable wastage of resources. Inter-regional coordination will be needed to ensure that each region’s actions and plans harmonize with the wider interests of the national economy as a whole.

Similarly, one of the main problems encountered by any given region in a large, diverse nation such as the USA, or in the context of large, global economic blocs such as the EU, is the possibillity of being underbid or outbid by a competitor region .4q Competitive and uncontrolled subsidies, or competitive reduction of wages may be undertaken by one region, with dramatic effects on the efforts of another to develop technology or to upgrade skills and productivity. Equally, the predatory poaching by one region of another region’s industrial firms may in fact result in reductions in, not additions to, national wealth, especially where those firms have important synergistic relations to others in their region of origin.50 In other words, a prerequisite of successful regional economic mobilization and within-region coordination is that there be ground rules for what regions may and may not do in

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competing with each other.

Alternative views and the dangers of orthodoxy

There is hardly consensus about the sort of policy framework outlined above. Opposed to it are those whose point of departure is the rapid global transfer and diffusion of certain forms of technology and knowledge, and the increasing costs (hence entry barriers) of carrying out cutting-edge innovation projects. They argue for global technology-based oligopolies, where the role of policy would be to enhance the status of the nation’s oligopolistic multinational firms.” In the USA, this would mean further weakening of anti-trust laws, either to promote concentration, or to promote collaboration. Complementing this, some also argue for neo-mercantilist trade policies. The problem with these recommendations is that there is little reason to believe that alone they would generate competitiveness: concentration policy in particular is often of doubtful value. 52 At the most, such policy can play a limited role in generating competitiveness, and at the worst it can be harmful, especially as it can result in sharply foreclosed technological trajectories.

Another approach to policy is that of strengthening so-called ‘systems of innovation’, especially national systems.53 There are many different versions of this approach extant at present. Almost all share an emphasis on formal organizations, on scientific-engineering skills, and on the national level of policy. The approach outlined here differs in its emphasis but is not necessarily in contradiction to the systems of innovation approach. The emphasis here is on the plurality of types of production systems and of innovation (science and engineering is only relevant to some sectors), ‘small’ processes of economic coordination, informal practices as well as formal institutions, and incremental as well as large-scale innovation and adjustment.

The present approach runs the risk that policy will become detached from the substantive purposes identified by theory and devolve into mechanical formulae with a self-referential content. Networking, for example, is now frequently discussed in the policy literature as a sort of keyword for any sort of communication between firms. In the framework outlined here, networking is specific to sector and region, and it can only be defined with respect to particular kinds of transactional failures, on the one hand, or learning opportunities and spillovers, on the other. Other forms of communication can be left to firms alone.54

Provision of services to firms has, in some cases, been reduced to a pretext for doing almost anything that supports local firms (especially politically popular ‘small’ firms) with few substantive criteria for assessing the purposes of these services. Some services can even have perverse effects. Technological modernization services, for example, can be used by the firms best equipped to absorb technologies to distance themselves from other producers and thereby ‘exit’ from local systemic interdependencies. Many technological extension services are based on the principle of survival of the fittest, not systemic learning.55

Nowhere is the danger greater than in the sudden all-purpose emphasis on ‘cooperation’ as a key to world-class economic performance. Cooperation has, correctly, been discovered as a dimension of certain highly successful industrial systems, principally in Italy and Germany, and its discovery has promoted a necessary corrective to the previous emphasis on competitive atomistic interaction of most economic thinking. But cooperation is only relevant with respect to certain kinds of interdependencies between firms, not to all of their interrelations, and the

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particular degree and nature of such cooperation will, again, differ greatly from sector to sector and region to region.

The very notion of boilerplate approaches to the new, heterodox policy framework is self-contradictory, for its point of departure is the diversity of industries and the context-dependency of methods of organizing them, especially of the social relations underpinning successful continuous adjustment. Such approaches empty the framework of its substantive context. Once this is done, it is relatively easy to repackage old-fashioned policies in new language, which then leaves the door open for treating the framework as a recipe for repeating the failures of the past. Thus, it is not uncommon to hear the new framework (which is strategic, systematic, and learning-oriented) being reduced to such failed approaches as ‘incubators’, or small-firm support programmes, or business climate enhancement, that have rarely had any strategic, systematic or learning orientation.56

Another danger of boilerplate approaches is that they so empty the framework of concrete content that they become a mere cover for inter-regional poaching of movable resources. We have already mentioned that it is essential for any regional policy framework to be inscribed within broader rules that limit such behaviour. In recent years, the turn to the region in the USA was stimulated essentially by a retreat of the federal government from the economic development field. In a nation where industrial and regional policy has always been comparatively weak, this left a policy vacuum that many states and localities attempted to fill. In some cases, small tentative steps towards the support of regionally based cluster of firms have been taken. But in many of the US cases, they resemble only superficially the policy framework discussed here. Instead, industrial policy has often been watered down to pay-as-you-go services with little strategic or coordinative content, and most especially by its inability to counter the overwhelming tendency to devote increasing proportions of public resources to locational tournaments.” The heterodox policy framework outlined here has little to do with this ‘entrepreneurial state’ philosophy, where localities and their government agencies are viewed as collective entrepreneurs in competition with each other.58 What we are pointing to here is rather what we might call (taking our cue from the East Asian development literature) the emergence of regional ‘developmental states’.5q

A case in point: Southern California

Southern California is a particularly rich and interesting example of a dense industrial region that is now facing multiple predicaments and a concomitant urge to collective remedial action. Over most of the postwar period, the region grew at a rapid pace, mainly on the basis of its privileged position since the 1950s as the dominant recipient of US Department of Defense prime contract awards. In recent years, however, the local economy has fallen into a deep crisis and its future prosperity is now widely seen to be in some jeopardy. Despite a long past history of aggressive resistance to any form of public intervention in local economic affairs-with the signal exception of Pentagon arms procurements-it is now being drawn headlong into many of the sorts of policy actions and institution-building activities adumbrated above.

Manufacturing remains one of the bulwarks of the economy of Southern California, although diverse service activities now actually employ more people in absolute terms. The region’s manufacturing base consists of four main groups of sectors, ie (a) a now almost moribund mass production group, (b) a high-technology

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group focused heavily but not exclusively on aerospace-defence sectors, (c) a general metallurgical and machinery complex providing a diversity of final products and services to other industries in the region and elsewhere, and lastly, (d) a set of labour-intensive craft industries, focused on apparel, furniture, and motion picture production. These groups made up just over 78% of total manufacturing employment in Southern California in 1990.60

This entire industrial system, with one or two noteworthy exceptions (apparel and motion pictures), has been losing employment rapidly in recent years, as expressed in a general crisis of job-loss, restructuring and deindustrialization. Declining federal defence procurements since about 1987 have had a devastating effect on the aerospace-electronics industries of the region. From 1987 to 1990, the high-technology industrial group declined by 16.5%, and since 1990, the decline has been even more severe. If we make the usual assumption that the multiplier effect of defence industries on the rest of the local economy is somewhere between 1.5 and 2.5, then the overall impact of this decline is greatly magnified.

Southern California’s industries are now also facing heightened foreign competition. In earlier decades, many of the region’s technology-intensive industries in particular were effectively sheltered from such competition. Now, products such as communication satellites, aircraft, and space equipment are beginning to feel strong competitive threats from producers in many different parts of the world. In addition, the craft-intensive industries are being sharply challenged by many Third World producers, although this group of industries as a whole has actually continued to expand in recent years, in part due to the availability of cheap immigrant labour.

Virtually all main segments of the region’s economy have been marked by a vast expansion since the late 1950s of sweatshop forms of production in which unskilled, low-wage immigrant (often undocumented) and female workers constitute the preferred labour force. Much of this trend can be interpreted as an opportunistic search by employers for cost-cutting measures in the interests of short-run competitive advantage. However, over the long run, it has created a stubborn vicious circle of declining wages and increasingly lower skill levels throughout the region‘s manufacturing economy, and it has tended to divert many sectors away from more effective strategies of dealing with intensifying competitive pressures by such means as reskilling, technological upgrading, and higher levels of product quality. This syndrome has had widespread effects in numerous industrial sectors in Southern California, from electronics assembly, to foundry work, to furniture. Significantly, the motion picture industry with its strong institutional base-eg highly developed forms of industry representation, its active guilds, and its participation in the rich cultural atmosphere represented by ‘Hollywood’-has effectively resisted this syndrome.

In view of the depth and breadth of the industrial restructuring currently going on in Southern California, the region is clearly at a turning point in its economic history. In a study carried out at the end of the 198Os, it was shown that much of the industrial economy of Southern California was remarkably wanting in the kinds of basic institutional infrastructures that seem to have had such positive effects in places like Japan, Germany and Italy.6’. This institutional deficit remains a serious problem for Southern California, although the current crisis has now sparked off a remarkable series of initiatives and experimental efforts whose objectives are precisely to address various aspects of this problem. A diverse group of participants-local government agencies, sets of manufacturers, labour unions, universities, and the like-are all beginning to play a role in this regard. And in view of the Los Angeles riots of late

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April 1992, the need for action in the area of job creation and regional economic growth has become all the more acute. Two particular efforts at local economic development in Southern California in this newly emerging climate of regional private-public cooperation merit further scrutiny.

First, there has been much discussion about a policy agenda that will foster the development of an advanced ground transportation equipment manufacturing industry in the region. This discussion has grown in part out of a projected $183 billion that the Los Angeles Metropolitan Transportation Authority will spend over the next 30 years in upgrading and transforming public transportation services in the region. The obvious question that has exercised many is, how can expenditure of this enormous sum of money be deployed so as to create new manufacturing industries and jobs in this region? And, as a corollary to this question, can the industries and jobs that might be created make use of the wealth of aerospace skills and technologies which exist in the region but which are currently seriously underutilized? A major effort, designated Project California, is now moving forward under the aegis of the California Council of Science and Technology to enquire into the possibilities of establishing a major ground transportation manufacturing industry in Southern California and other parts of the state, and into the kinds of policy initiatives that would be necessary to initiate and sustain it. What is particularly striking about Project California is the breadth of political support that it has so far managed to draw on, and its work seems likely to result eventually in major public action. The net result in Southern California may well be a burgeoning new electronics-based ground transportation equipment industry with massive support from agencies like the Metropolitan Tranportation Authority, the California Department of Transportation (which, concomitantly, is also planning to construct a major transportation technology research centre), the California Department of Commerce, and others.

Second, and intersecting with this effort, is a vigorous private-public attempt to establish an infant electric car industry in Southern California. This attempt can be traced back to two main events. One is the California Air Resources Board rules that establish a market for electric cars in the state by specifying percentages of zero-emission vehicles that must be attained in automobile manufacturers’ fleets by various dates over the next decade. The other is the Los Angeles Initiative of 1988 that led to the selection of a Swedish-British venture (Clean Air Tranport Inc) to sell and eventually produce hybrid gasoline-electric vehicles in the region. In 1991, stimulated by a report published by the Lewis Center for Regional Policy Studies at UCLA, the federal Advanced Transportation Systems and Electric Vehicle Consortia Act (authored by Congressman Howard Berman) was passed, making funds available to private-public consortia for the development of innovative transportation technologies.62 In response to this legislation, a Southern Californian electric vehicle consortium named CALSTART was established as a non-profit-making private-public partnership, and bid successfully for a share of the funds allocated by the Act. CALSTART gained additional financial support from a variety of local public agencies, and immediately set about the task of establishing a Southern California network of components manufacturers working collaboratively to produce a prototype electric car. This part of CALSTART’s programme has now been successfully completed, and efforts are currently under way to develop and commercialize the various components for national and international markets. In this manner, the beginnings of a new industry seem to be making their appearance in Southern California, and reports are that various public efforts are now being made

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to encourage the establishment of some sort of electric car assembly capacity in the region in the near future.

Despite these encouraging examples that indicate the creativity and potential of private-public economic development efforts, Southern California remains a region whose economic future is extremely clouded. Much remains to be done in the formulation and implementation of policies that will push the region’s manufacturing apparatus as a whole decisively in the direction of rising skills, improved product quality, and higher levels of productivity.

In view of this imperative, current political pressures in California (mainly from conservative critics) to address the problem of job loss and deindustrialization by means of improvements in the ‘business climate’, seem at best a diversion and at worst a prescription for further deterioration of the local economic fabric. These critics argue that it is necessary to relax workers’ rights and entitlements, dilute minimum wage legislation, and roll back hard-won gains in the area of environmental regulation. To be sure, some of the latter arrangements (workers’ compensation, in particular) do need administrative reform; their attenuation, however, does not represent an open gateway to new rounds of high-quality job creation and vigorous industrial growth. In fact, if these safeguards were removed this would surely lead in the long run to additional degradation of the region’s competitive advantages by encouraging yet further shifts into low-grade, low-wage manufacturing. The central policy problem is not to construct a regional milieu that is attractive to producers who calculate that they can only survive in inferior manufacturing environments, but to establish a regional development trajectory that leads to superior forms of competitiveness based on risingconditions of work and life for all.

Conclusion

The region is not the only level of economic community that crystallizes out as a nexus of transactions; others, such as firms, sectors, factor markets, and nations remain central to economic organization in capitalism. Each has, as well, its own particular tendencies to failure and hence is an appropriate domain of policy intervention. In arguing here for the region as a basic articulation of economic activity and claiming that industrial policy must consist in part of means to resolve potential regional failures, we must confront the need for the regional dimension of industrial policy to be appropriately complemented by policies at these other levels. Thus, nothing in the present analysis is meant to deny the imperative of selective policy interventions in such areas as strategic sector planning, national labour markets, and international trade. These areas are also likely to play major roles in the policy apparatuses of the successfully competitive advanced economies at the dawn of the 2 1 st century.

Economically successful and transaction-rich regions, moreover, are likely to comprise only a limited part of each national territory. Many other regions are not economic systems or communities as they are defined here, and they remain in a relatively underdeveloped state. Many such regions lack even the possibility of constructing policies such as those outlined above. Other sorts of policies aimed at fostering development in these places remain necessary, and this is undoubtedly a task for national governments, whose power in spatially distributing infrastructure, R&D, education and other preconditions of development, remains essential. In short, the regionalization of industrial policy and the politicization of regional

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development must be embedded in broader institutional contexts to deal with the problem of regional ‘left-behinds’.

Our analysis is one that claims that the regionalization of industry policy is necessary to competitiveness in the contemporary world economy, but that it is neither functionally nor geographically sufficient to ensure all dimensions of competitiveness or the elimination of regional inequalities.

Notes and references

1.

2.

3.

4. 5.

6.

7.

8.

9. 10.

11.

12.

13.

14.

15. 16. 17. 18.

19.

20.

21.

22.

A J Scott, Metropolis: from the Division of Labor to Urban Form (Berkeley and Los Angeles, CA, University of California Press, 1988); A Lung and A Mair, ‘La gkographie du juste&temps: faux espoirs et vraies questions’, Meeting of the European Regional Science Association, Brussels; 1992. A Rip, ‘A cognitive approach to technology policy’, paper prepared for the symposium, ‘New Frontiers in Science and Engineering’, Paris; 27-29 May 1991, B A Lundvall, ‘Explaining interfirm cooperation and innovation: limits of the transactions cost approach’, in C Grabher (editor), The Embedded Firm (London, Routledge, 1992), pages 52-64. Scott, op tit, reference 1. A Amin and N Thrift, ‘Living in the global’, in A Amin and N Thrift (editors), Globalization, lnstirutions and Regional Development in Europe (Oxford, Oxford University Press, 1994). E Lorenz, ‘Neither friends nor strangers: informal networks and subcontracting relationships in French industry’, in D Gambetta (editor), Trust (New York, Oxford University Press, 1988); C Sabel, ‘Studied trust: new forms of cooperation in a volatile economy’, in F Pyke and W Sengenberger (editors), industrial Distric& and Local Economic Regeneration (Geneva, International Institute for Labour Studies, 1992). P Christensen, H Eskelinen, 6 Forsstrom, L Lindmark and E Vatne, ‘Firms in networks: concepts, spatial impacts and policy implications’, in S llleris and L Jakobsen (editors), Networks and Regional Development (Copenhagen, NordREFO, 1990), pages 11-59. S Sassen, The Global City: New York, London, Tokyo (Princeton, NJ, Princeton University Press, 1990). Ibid. G Becattini, ‘The Marshallian industrial district as a socio-economic notion’, in F Pyke, G Becattini, and W Sengenberger (editors), industrial Districts and Inter-firm Cooperation in ltaly (Geneva, International Institute for Labour Studies, 1990), pages 37-52. G Dei Ottati, ‘The economic bases of diffuse industrialization’, /nrernationa/Studies in Management and Organization, 27(l), 1991, pages 53-75; and G Dei Ottati, 1994, ‘Cooperation and competition in the industrial district as an organization model’, European Planning Studies 2(4), 1994, pages 371-392. B Asanuma, ‘Manufacturer-supplier relationships and the concept of relation-specific skill’, journal of the japanese and international Economics, 3, 1991, pages l-3. C Grabher, ‘Rediscovering the social in the economics of inter-firm relations’, in G Grabher (editor), The Embedded Firm (London, Routledge, 1993), pages l-31; G Hodgson, Economics and institutions (Cambridge, Polity Press, 1988); M Granovetter, ‘Economic action and social structure: the problem of embeddedness’, American journal of Sociology, 91(3), 1985, pages 481-510. R Salais and M Storper, ‘The four worlds of contemporary industry’, Cambridge journal of Economics, 76, 1992, pages 169-193. Hodgson, op tit, reference 13. Scott, op tit, reference 1. 0 Williamson, The Economic institutions of Capitalism (New York, Free Press, 1985). Asanuma, op tit, reference 12; R Dare, Flexible Rigidities (Stanford, CA, Stanford University Press, 1987). A Sayer, ‘New developments in manufacturing: the just-in-time system’, Capital and C/ass, 30, 1986, pages 43-72. P Cooke and K Morgan, ‘The network paradigm: new departures in corporate and regional development’, Environment and Planning D: Society and Space, 1 I, 1993, pages 543-564; W W Powell, ‘Neither market nor hierarchy: network forms of organization’, Research in Organizational Behaviour, 72, 1990, pages 295-336. R Nelson and M Rosenberg, ‘Technical innovation and national systems’, in R Nelson (editor) National Innovations Systems (New York, Oxford University Press, 1993), pages 3-27. S Grossman and 0 Hart, ‘The costs and benefits of ownership: a theory of vertical and lateral integration, Journal of Political Economy, 94(4), 1986, pages 671-691.

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23.

24.

25.

26.

27.

28.

29.

30. 31.

32. 33.

34

35.

36.

37.

38.

39.

C Dosi, ‘Sources, procedures and microeconomic effects of innovation’, Journal of Economic Literature, 25, 1988, pages 1 120;-1171. See N Rosenberg, inside The Black Box: Technology and Economics (Cambridge, Cambridge University Press, 1982); M Gertler, ‘Implementing advanced manufacturing technology in mature industrial regions: towards a social model of technology production’, RegionalStudies, Z?‘(7), 1993, pages 665-680. 6 A Lundvall, ‘Innovation as an interactive process: from user-producer interaction to the national system of innovation’, in G Dosi, C Freeman, R Nelson, G Silverberg and L Soete (editors), Technical Change and Economic Theory (London, Pinter, 1988). Scott, op tit, reference 1. See also A J Scott, Technopolis: High-Technology Industry and Regional Development in Southern California (Berkeley and Los Angeles, CA, University of California Press, 1993). See P Bianchi and M G Giordani, ‘Innovation policy at the local and national levels; the case of Emilia-Romagna’, European Planning Studies, 1(l), 1993, pages 24-41. H Jayet, ‘Chbmer plus souvent en region urbaine, plus longtemps en region rurale’, Economic et Statistique, IS_?, 1983, pages 47-57; H Coing, La vi//e: marche de J’emploi (Grenoble, Presses Universitaires de Grenoble, 1982). A Saxenian Regional Advantage: Cultural and Competition in Silicon Valley and Route 128 (Cambridge, MA, Harvard University Press, 1994). A J Scott, op tit, reference 26. Dei Ottati, op tit, reference Il. See also A J Scott, New industrial Spaces: Flexible Production Organization and Regional Development in North America and Western Europe (London, Pion, i 988). Becattini, op tit, reference 10. G Grabher, ‘The weakness of strong ties: the lock-in of regional development in the Ruhr area’, in G Grabher (editor), The Embedded Firm (London, Routledge, 1993). A J Scott, ‘Variations on the theme of agglomeration and growth: the gem and jewellery industry in Los Angeles and Bangkok’, Geoforum, 1994. The literature is now vast. See inter alia, R Hassink, Regional Innovation Policy: Case Studies from the Ruhr. (Utrecht, Faculteit Ruimtelijke Wetenschappen Rijksuniversiteit, 1992), K Morgan, ‘Reversing attrition? The auto cluster in Baden-Wtirttemburg’, paper delivered to the lnnis Centennial Conference on Regions, Institutions and Technology, Toronto, 23-25 September, 1994; Cooke and Morgan, op tit, reference 20; Pyke and Sengenberger, op tit, reference 6; A Amin and N Thrift, ‘Institutional issues for the European regions: from markets and plans to socioeconomics and powers of association’, paper presented to the lnnis Centennial Conference, 1994; J Hirst and J Zeitlin, Reversing Manufacturing Decline? (Oxford, Berg, 1990); R Camagni, Innovation Networks: Spatial Perspectives (London, Belhaven, 1991); M Best, The New Competition (Cambridge, Polity Press, 1990). P A David, ‘Technology diffusion, public policy and international competitiveness’, in R Landau and N Rosenberg (editors), The Positive Sum Strategy: Harnessing Technology for Economic Growth (Washington, DC, National Academy Press, 1986). Dosi, Pavitt and Soete, op tit, reference 25; see also A R Markusen, Profit Cycles, Oligopoly and Regional Development (Totowa, NJ, Rowman and Allanheld, 1986). H Odagiri and A Goto, ‘The Japanese system of innovation: past, present and future’, in R Nelson (editor), National Innovation Systems (New York, Oxford University Press, 1993), pages 76-l 14. J J Salomon, Le GauJois, /e Cowboy et Je Samourai: /a pohtique francaise de /a technologie (Paris, Economica, 1986).

40. Bianchi and Giordani, op tit, reference 27; D Friedman, ‘Getting industry to stick: enhancing high value-added production in California’, in A j Scott (editor) Policy Options for Southern California, (Los Angeles, CA, UCLA Lewis Center for regional Policy Studies, Working Paper No 4, 19931, pages 135-177.

41. D Angel, The Local Labor Market for Engineers in Silicon Valley (Los Angeles, CA, UCLA, Department of Geography, PhD dissertation, 1987).

42. L Scarpitti, ‘Ambiti e mete di interventi di politica industriale a livello locale’, (ENEA, Rome, 1989); A Lassini, G/i Interventi Regionali per i Servizi a//e tmprese (Milan, Franc0 Angeli, 1985; S Brusco and E Rizio, ‘Local government, industrial policy, and social consensus: the experience of Modena’, oaper delivered to OECD Italy Seminar, ‘Opportunities for Urban Economic Development’, Paris, i985.

43. Saxenian, op tit, reference 29; Hirst and Zeitlin, op tit, reference 35. 44. Lorenr, op tit, reference 6; on a theoretical level, see R Axelrod, The Evolution of Cooperation

(New York, Basic Books, 1984). 45. There are different approaches to what makes ‘cooperation’ come into being, from interest to fear of

sanction. See J Saglio, ‘La concurrence: un regle du jeu economique parmi d’autres’, Maison Rhone-Alpes des Sciences de I’Homme, Lyon, unpublished paper; M Aoki, Information, incentives and Bargaining in the Japanese Economy (Stanford, CA, Stanford University Press, 1988).

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46.

47.

48.

49.

50. 51.

52.

53.

54.

55.

56. 57.

58.

59.

60. 61.

62.

P Katzenstein, Small States in World Markets (Ithaca, NY, Cornell University Press, 1985); M Wallerstein, ‘Union growth from the union’s perspective: why smaller countries are more highly organized’, Los Angeles, CA, UCLA Department of Political Science, unpublished paper, 1987. M Storper, ‘Boundaries, compartments and markets: paradoxes of industrial relations in growth pole regions of France, Italy and the USA’, in S Jacoby (editor), National Labor, Global Capital (New

York, Oxford University Press, pages 155% 181). C Herrigel, Reconceptualising the Sources of German Industrial Power (Cambridge, Cambridge University Press, 1994); Morgan, op tit, reference 35. L K Mytelka, ‘Locational tournaments, strategic partnerships, and the state: a research proposal’, Ottawa, Carleton University Dept of Political Science, 1994; D Drache, ‘Dreaming trade or trading dreams: a comparative analysis of trade blocs’, Toronto, paper presented to the lnnis Centennial Conference, ‘Regions, Institutions, and Technology, 23-25 September, 1994. Ibid. See, inter alia, J Zysman et al, The Highest Stakes: the industrial foundations of the Next Security Regime, (Cambridge, MA, Ballinger, 1993); B Harrison, Lean and Mean: the Resurrection of Corporate Power in an Age of Flexibility (New York, Basic Books, 1994). H Ergas, ‘The failure of mission-oriented technology policies’, in P Bianchi and M Q&r6 (editors), Systems of Innovation: National and Local Dimensions (Amsterdam, Kluwer, 1994). R Nelson (editor), National Innovation Systems: A Comparative Analysis (New York, Oxford University Press, 1994). S Rosenfeld, Competitive Manufacturing: New Strategies for Regional Development (New Brunswick, NJ, Center for Urban and Policy Research, 1992). M Storper, ‘Regional technology coalitions: an essential dimension of national technology policy’, Research Policy, forthcoming. As in Harrison, op tit, reference 51. E Sternberg, Photonic Technology and industrial Policy: US Responses to Technological Change (Albany, NY, State University of New York Press, 1992); P A David, ‘High technology centers and the economics of locational tournaments’, Stanford, CA, Stanford University, mimeo, 1984. D Osborne and T Gaebler, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, (New York, Plume, 1993). C Johnson, M/J/ and the Japanese Miracle (Berkeley, CA, University of California Press, 1982); R Wade, Governing the Market: Economic Theory and the Role of Government in East Asian industrialization (Princeton, NJ, Princeton University Press, 1990); C Gereffi and S Fonda ‘Regional paths of development’, Annual Review of Sociology, 18, 1992, pages 419-448. A J Scott, op tit, reference 26. A J Scott and A S Paul, ‘Collective order and economic coordination in industrial agglomerations: the technopoles of Southern California’, Environment and Planning C: Government and Policy, 8, 1990, pages 179-l 93. R M Morales, M Storper, Cisternas, C Quandt, A J Scott, J Slifko, W Thomas, W Wachs and S Zakhor, Prospects for Alternative Fuel Vehicle Use and Production in Southern California: Environmental Quality and Economic Development (Los Angeles, CA, UCLA Lewis Center for Regional Policy Studies, Working Paper No 2, 1991).

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The wealth of regions

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