If you recall in article 1 we introduced the idea of thinking about industries as ‘systems.’ This now leads us to consider industrial clusters.
Some regions punch above their weight economically because they have highly developed industrial clusters – those geographically tight-knit communities of interconnected businesses, specialist suppliers, service providers, and crucial institutions like universities and research centres. Think Silicon Valley’s tech giants, Hollywood’s silver screen magic, East London’s “Tech City” buzz, or the City of London’s financial powerhouse. Historically, the Sheffield steel industry, the Clyde’s shipbuilding prowess, and Manchester’s textile mills tell the same story.
These aren’t just random collections of firms. They thrive on powerful connections:
- Transactions and value chains: Businesses buy from and sell to each other, creating efficient local supply chains.
- Talent Hotspots: A concentration of firms attracts a deep pool of skilled workers with industry-specific expertise.
- Knowledge Spillover: Ideas, know-how, and best practices flow freely through informal networks.
- Specialised Infrastructure: Clusters often foster the development of tailored infrastructure and support services.
- Collaborative Edge: Firms team up on R&D, training, and marketing, amplifying their impact.
The concept of industrial clusters gained serious traction thanks to Michael Porter’s seminal work, “The Competitive Advantage of Nations” (1990). While not solely about clusters, Porter brilliantly highlighted how these geographical concentrations boost competitiveness by supercharging productivity, driving innovation, and sparking new business creation. His “diamond” framework put clusters firmly on the economic development map, influencing strategies across the globe, including the early work of agencies like Scottish Enterprise.
Groundbreaking academic work further solidified the theory:
- Krugman (1991): Showed how increasing returns and transport costs naturally lead to the geographical clustering of economic activity.
- Belussi (1992): Deep-dived into the Italian “industrial district” model, revealing the power of networks of small and medium-sized enterprises rooted in strong local ties.
- Castells (1996): Provided a crucial understanding of how information flows and networks within geographical concentrations fuel economic activity in our interconnected world.
- Glaeser (2010): Offered a rigorous economic analysis of “agglomeration economies” – the tangible benefits firms and workers gain from being close to each other.
Why are these clusters so vital for our regional economies?
- Turbocharged Productivity: Specialisation drives efficiency and quality. Easy access to specialist suppliers cuts costs. Knowledge sharing fuels innovation.
- Innovation Unleashed: Ideas cross-pollinate as skilled workers move between firms. Competition breeds innovation. Clusters become fertile ground for start-ups.
- Enhanced Competitive Edge: Clusters become magnets for talent, build strong regional reputations, and enable collective marketing power.
- Attracting Global Investment: Successful clusters are prime targets for foreign companies seeking established expertise and supply chains.
- Job Creation & Growth: Increased productivity and innovation translate directly into business expansion and higher-paying jobs.
- Supporting Ecosystems: The growth of core industries sparks the development of vital support services, diversifying the local economy.
- Smarter Policy: Focusing on existing or potential clusters allows for targeted investment in infrastructure, education, and research, making economic development efforts more effective.
- Economic Resilience: Interconnected clusters can better weather economic storms affecting specific sectors.
Essentially, industrial clusters create a powerful synergy where the collective impact far outweighs the individual parts – a prime example of place-based advantage in action.
Compelling US research demonstrates that clusters aren’t just a theory; they deliver tangible results
- Higher Job Growth: Industries within strong clusters experience significantly faster employment growth.
- Wage Premiums: Specialised clusters drive higher rates of wage growth.
- Innovation Hubs: Strong, growing clusters with a history of innovation see even greater innovation activity.
- Entrepreneurial Hotbeds: Thriving clusters with growing employment also foster increased levels of entrepreneurship.
The US study even quantified the impact: strengthening cluster specialisation, related clusters, and neighbouring clusters can boost annual employment growth by a significant 1.7 to 3.7 percentage points.
A recent evaluation of Canada’s Superclusters policy revealed that £930 million (CAD 1.6 billion) in project spending over four years created nearly 24,000 jobs in the short term, with projections of up to 59,000 in the medium term.
Clusters in Action Today:
The ClimateTech SuperCluster (www.climatetechsupercluster.com) exemplifies this collaborative power. Spanning the UK, Belgium, France, Germany, and the Netherlands, it’s a dynamic hub for cleantech entrepreneurship, R&D, innovation, and markets. This geographically diverse cluster, encompassing 15 cities and a massive consumer and business base, aims to accelerate the development of a globally competitive climate technology sector, crucial for achieving net-zero targets.
Across the globe, strategic initiatives recognise the power of clusters:
- European Cluster Collaboration Platform (ECCP): An EU-wide network fostering connections and knowledge exchange between European clusters.
- National Cluster Programmes: Countries like Germany, France, and Canada have national programmes providing funding and support for strategic industrial clusters.
- EU’s Smart Specialisation Strategies (RIS3): Encouraging regions to focus their innovation investments around their existing or potential clusters.
- Government Innovation Zones: The UK’s Investment Zones and innovation districts worldwide aim to attract investment and foster growth in targeted sectors by building or strengthening clusters.
In conclusion, nurturing and growing industrial clusters is not just a desirable policy; it’s a fundamental pillar for driving innovation, boosting productivity, and securing sustainable economic growth across the UK’s regions. By understanding and leveraging the power of place and connection, we can unlock the full potential of our local economies.
The next article – “Local Economies, Global Chains: Rethinking Industrial Clusters for Growth (article 4 of 5 on industrial policy)” will be released on Wednesday 30 April.
