3-2 MODELS OF REGIONAL DEVELOPMENT

Knowledge and the Spatial Proximity Debate

In academic literature, the connection between firms’ success, innovation and the use of external technological resources, and the localisation of economic development now seems to be widely accepted. For example, Dicken (1999:39) highlights the importance of geography in innovation and learning, arguing that innovations are less the product of individual firms than of the “assembled resources, knowledge and other inputs that are localized in specific places”. Recent theoretical advances in the social sciences provide new insights into the path-dependent evolution of social and economic arrangements.

of knowledge and experience. These links between labour-market structure and processes of innovation

There are several strands of literature in economic geography and other cognate fields, which are reviewed below.

One of the strands of the literature in the current debate in economic geography has focused particularly on the interactions of ‘regional collective learning’ between firms and institutions within local enterprise clusters (Keeble and Willkinson, 2000).⁹ The other strand, on the ‘learning region’, and ‘regional innovation systems’, considers in addition the role of regional institutions and social capital in facilitating networking and the generation and diffusion of knowledge (see Chapter 2, p.36). Both this localised learning and the regional innovation system suggest that geographical proximity between organisations is important in stimulating dynamic learning and innovation (Potter et al., 2002:285). In this literature, regional institutions are allegedly expected to actively create a number of economic and social relations to help facilitate a series of institutional interactions. As is shown below, universities are seen as one of the important regional institutions involved in this.

and technological change remain largely unexplored (Angel, 2000:127-8).

9 The agglomeration of related firms in specific locations has attracted great scholarly interest among social scientists since the time of Alfred Marshall (1890). Recent theoretical research on the territorial dimension of economic and technological development has drawn attention to the local processes of

‘collective learning’, which involve exchange and development of organisational and technological knowledge. A conceptualisation of regional collective learning was set out by the Groupe de Rechereche European sur les Milieux Innovateurs. For instance, Camagni (1991:130 cited from Keeble et al.,

1998:320) argues that collective learning is central to the development and definition of a successful local milieu. Keeble et al., (1998), in their study of the Cambridge Region, conclude that the development of a regional capacity for collective learning involves both the establishment of preconditions for learning, in the form of culturally based rules of behaviour, engagement and collaboration and accepted but tacit codes of conduct between individuals and firms which enable the development of trust, and conscious and unconscious regional processes of interfirm and organisational networking and diffusion of embodied expertise (Keeble, et al., 1998:330). It is important to note that networks and links between firms and other organisations in a region such as universities, regional development agencies, city councils, chambers of commerce and so on, and the links via the regional labour market are viewed as playing key roles in the recent evolution of dynamic ‘innovative milieu’.

These interactions are variously called ‘interactive learning’ (Florida, 1995),

‘innovation networks’ (Cooke and Morgan, 1993), ‘institutional thickness’ (Amin and Thrift, 1994), ‘localised learning’ (Lorenzen, 2001), or ‘soft social capital’ (Putnam, 1995). This implies that knowledge, learning and communication require consideration at a local and regional level, along with an examination of these institutional interactions. A consideration of “the institutional preconditions of the learning region”

(Morgan, 1997:497) will be helpful to understanding the mechanisms of knowledge creation at regional level, and to identifying the preconditions for becoming an innovative region.

Knowledge transfers are strongly emphasised by economic geographers working on innovation systems and localised learning concepts. In general terms, there are contrary views on the association of spatial proximity and the different transferability of various types of knowledge.¹⁰ In short, “many transactions are highly sensitive to geographical distance by virtue of their substantive complexity, uncertainty and recurrence over time” (Storper and Scott, 1995:507-8). ¹¹

In this process, many scholars emphasise the importance of regionally embedded knowledge and the shared norms and values which allow effective organisational as well as individual learning (Maskell and Malmberg, 1999). Some authors argue that

10 According to some authors, the transmission of new technological knowledge is said to work better within “geographical boundaries” because this kind of knowledge has “a tacit and uncodified nature”

(Lundvall, 1988 cited in Baptista, 2000:516). It is claimed that “diffusion of new technological processes may occur faster in geographical areas where the density of sources of knowledge about such

technologies is higher”(Baptista, 2000:516). In contrast, the view of Chesnais (1988) is that “commercial (sales, strategic, or financial) and basic scientific networks can work well at a long distance”. However,

“dealing with practical production-related issues, such as designing software or making product adjustments or applications, tend to be geographically a clustering phenomenon” (cited in Cooke and Morgan, 1993:553).

11 According to Maskell and Malmberg (1999), globalisation is a process encoding localised tacit knowledge and capabilities, and the codification of tacit knowledge is a process very similar to the process of ‘ubiquitification’, whereby the competitiveness of firms in the high-cost areas of the world is getting undermined. However, the conversion from ‘tacit’ to ‘explicit’ knowledge is not so

straightforward, and the distinction is not so clear-cut. Diffusion of knowledge from ‘local’ to ‘global’

forms of “hybrid” or tacit knowledge (Goddard and Chatterton, 1999:687) are most readily developed within the region because “tacit knowledge is collective in nature, and because it is wedded to its human and social context, it is more territorially-specific than is generally thought” (Morgan, 1997:495). ¹² In this line of thinking, collective learning processes and a collective tacit knowledge are linked to the region because of the coincidence of social, cultural and spatial proximity. The idea of collective tacit knowledge in regions bears strong similarities to the concept of ‘untraded interdependencies’ (Storper, 1995) ¹³ and ‘social capital’ (Putnam, 1995), but further clarification of these concepts is needed. From a somewhat different perspective, Michael Porter argues that “competitive advantage is created and sustained through a highly localised process” (Porter, 1998:19) and that “national competitive advantage

…resides as much at the level of the cluster as it does in individual industries”(1998:152). This process is increasingly associated with regions.

However, despite the consensus concerning the importance of the sub-national, the literature is not consistent about the scale at which collective learning and innovation occur. Waters and Lawton Smith (2002:634-5) argue that, despite the consensus concerning the importance of the sub-national level where interactions of institutions take place, there is confusion as to what is meant by regions. ¹⁴ The

and vice versa is not a simple process. Allen (2000:15) critically examines the tendency to map the tacit-explicit knowledge distinction on the local-global scale in economic geography literature.

12 Tacit knowledge such as know-how (skills), know-who (networking), and know-why (experience) is said to have become the most valuable type of knowledge depending upon “interpersonal relationships, trust, and cooperation” (Goddard and Chatterton, 1999:687) in the process of producing ‘innovative

knowledge’. The process of knowledge production can be summarised as follows: it consists of the mutual process of capturing ‘tacit’ knowledge, which is stored in human brains; making it ‘explicit’ and codifiable as information or knowledge about facts; and transforming existing (Mode1) knowledge into innovative (Mode2) knowledge creation (Gibbons et al., 1994).

13 Storper (1997:28) stresses that agglomeration economies are not based solely on input-output relations but, also and crucially, on the “untraded or relational dimensions of organisations and technologies”

allowed by proximity, so that the principal assets of territorial economies are relational and not material.

14 This is because of confusion between “regions” as “multiple nodes of activity” and “localities” where

“activities are clustered around a single node or functionally linked near nodes” (Waters and Lawton Smith, 2002:634).

‘rhetoric’ concerning the advantage of the regional scale of policy intervention is not consistent with the ambiguities of scale at which innovation and intervention actually occur. Given the emphasis placed on proximity it would appear that authors are prioritising localities whilst literature on globalisation seems to emphasise

‘regionalisation’ of some sorts (see above p.62). Moreover, the conceptual coherence of a region depends on the extent of devolved powers which allow regions to develop a strategy as a region in relation to central government. Hence there are inherent tensions between local and regional levels of policy supports and between regional agencies and central government (see Chapter 5 for the UK policy context).

It is also important to emphasise that the idea of localised learning needs to be considered in relation to non-local actors. Past research on industrial districts, innovative milieu, and local milieu has stressed primarily the essential nature of local conditions for innovation, and the shift from the exogenous to the endogenous model has caused many to overlook the critical role of links to ‘non-local networks’ (Park and Markusen, 1995; Malecki, Oinas and Park, 1999:261; see above p.66). Park argues that non-local embeddedness is important for the formation and functioning of industrial districts (Park, 1995:155).¹⁵

15 It is suggestive that, in the newest strategies of some of Italy’s most advanced regions, Emilia-Romagna and Tuscany, crucial importance is attached to finding the right mix of supporting intra- and inter-regional linkages (Bellini, 2000 cited in Hassink, 2001:227).

Regional Innovation Systems and Multi-Level Governance

The regional innovation system concept originates from discussions about ‘national innovation systems’ (e.g. Nelson, 1993; see also above p 66). Von Hippel (1988) has provided the view that innovation takes place through distributed systems.¹⁶ Although the nation-state provides the overall organising framework, individual and often local institutional actors, operating in conjunction with nationally determined initiatives and strategies, comprise the framework of innovation systems operating at sub-national levels. Systems approaches to innovation vary in emphasis and level, but they share a common core idea that: “the overall innovation performance of an economy depends not so much on how specific formal institutions (firms, research institutions, universities, etc.) perform, but on their interplay with social institutions such as values, norms, legal frameworks, and so on” (Smith, 1995:72, my emphasis). It contrasts with the linear model of innovation which is a simple deterministic model that represents the sequence from basic and applied research to product and process development.

The concept of regional innovation systems has been empirically described and widely tested (e.g. Braczyk et al., 1998; De la Mothe and Paquer, 1998). ¹⁷ The regional innovation systems approach has developed a typology of systems (Cooke, 1998:19-24) assisting in the understanding of the structural differences in the ‘systemness’ of regions.

Comparative analysis of regional innovation systems has provided some guidance for policy makers as “policy-oriented innovation stimulation models”(Hassink, 2001:224).

The institutional thickness (Amin and Thrift, 1994:15) found in local systems such as

16 Von Hippel’s research shows that innovation within a manufacturing sector is diffused to other groups in the system through various mechanisms including personal contacts. To repeat, a system of innovation is constituted by “elements and relationships which interact in the production, diffusion and use of new, and economically useful, knowledge” (Lundvall, 1995: na). Lundvall (1995:2) summarises the essential characteristics of systems of innovation as follows: “…system of innovation is a social system. A central activity in the system of innovation is learning, and learning is a social activity, which involves

interaction between people. It is also a dynamic system, characterised both by positive feedback and by reproduction”.

Baden-Württemberg in Germany and northern Italy has provided models of regional innovation systems for other regions.¹⁸

The recognition that the organisation of innovation support occurs horizontally within regions and vertically between regions, member-states, and the European Union has led to the idea and theory of “multi-level governance”(MLG) in contrast to the state-centric view of the development of the European Union. The MLG approach accepts the greater complexity of overlapping competences displayed by different governances and the emergent and innovative role of new kinds of actors which may operate across national and regional levels. Cooke et al. (2000a: 97-105) incorporate the MLG approach into their framework and context of regional innovation. MLG theorists hold that in cases such as regional policy and the future development of innovation policy,

“no single level has exclusive competence over policy” (Cooke et al., 2000a: 99).

According to Cooke et al. (2000a: 104) a regional innovation system consists of two sub-systems. Following Autio (1998), the two key sub-systems in any functioning regional innovation system are:

• The knowledge application and exploitation sub-system;

• The knowledge generation and diffusion sub-system.

The first is principally concerned with firms whilst the second is mainly concerned with public organisations like universities, research institutes, technology transfer agencies, and the regional and local governance bodies responsible for innovation support practices and policies.

17 Recently, a distinction has been made between Entrepreneurial, and Institutional Regional Innovation Systems (ERIS & IRIS). (Cooke, 2003a: 12).

18 In the example of areas such as Baden-Württemberg “leading edge large engineering companies (for example, Bosch) are said to rely on local subcontracting and supply networks for their flexibility and innovative excellence” (Amin and Malmberg, 1994: 230-1).

Each of these sub-system organisations interacts with the others and with national innovation organisations or the national innovation system as well as international policy- and knowledge- generating organisations such as the EU and non-European universities, research institutes and firms (Cooke et al., 2000a: 105). Most regions, and many nations, have poor linkage between these two sub-systems. Where nations or regions have overcome this barrier, it is either through the “successful working of market mechanisms”, set in an appropriate regulatory environment, as classically found in the USA. Or, alternatively, market failure is overcome by the “establishment of state entities that directly or indirectly seek to straddle the ‘exploration’ to ‘exploitation’

divide”. Regional development agencies have often embarked on the second of these to integrate the necessary knowledge flows, since the first option is emergent but not yet mature (Cooke, 2003a: 12). ¹⁹

Following these arguments, the thesis adopts the concept of regional innovation systems set within the MLG framework as a basic conceptual framework to investigate institutional interactions within a region. In addition to supra-national, national and regional scales of the MLG approach, it is important to consider the inherent tensions between the relationships at regional and sub-regional (local) levels. Later chapters examine the extent to which different regions have ‘regionalised’ knowledge economies through horizontal regional partnerships for collective learning and vertical interaction within a MLG framework. See Figure 5.1 (Chapter 5, p. 161) for a MLG model in the UK.

19 In some regions, “boundary crossing” institutions have been developed in order to bridge the gap (Cooke, 2003a: 13). Examples include the services provided by the Steinbeis Foundation in Baden-Württemberg which demonstrate good practice (Hassink, 1996 cited in Lorenzen, 2001:177). Large firms make good use of Fraunhofer and industrial research institutes for technology applications work; the Max Planck basic research institutes and universities are given commissions. For SMEs, the technology-transfer activities of the Steinbeis Foundation, chambers of industry and commerce, and consultants are widely accessed to solve innovation problems throughout the lund (Cooke et al., 2000a: 111).