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Untraded InterdependenciesThe Resurgence of Regional Economies, Ten Years Later : The Region as a Nexus of

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THE RESURGENCE OF REGIONAL ECONOMIES, TENYEARS LATER:

THE REGION AS A NEXUS OF UNTRADED INTERDEPENDENCIES

Michael StorperUniversity of California, Los Angeles (UCLA)

Abstract

Since the early 1980s, social scientists have increas-ingly focused upon the significance of the region tothe organization of economic life. This articleconsiders three main lines of analysis which haveemerged. These concentrate respectively on insti-

tutions, industrial organization and transactions, andtechnological change and learning. Each has made

strong claims about the role of the region. I argue

here, however, that none has yet developed a whollyconvincing explanation for the resurgence of regionaleconomies. To do this it is necessary to understandthe region as a locus of untraded interdependencies.This has implications for how we think about regionaland industrial policies. I illustrate these points withsome remarks on regional policies in contemporaryEurope.

The rediscovery of the region and itscritics: post-fordism, districts and all that

Something funny happened in the early 1980s. Theregion, long considered an interesting topic tohistorians and geographers, but not considered tohave any interest for mainstream western socialscience, was rediscovered by a group of heterodoxpolitical economists, sociologists, political scientistsand geographers. Not that no attention had beenpaid to regions by social scientists before that: inregional economics, development economics, andeconomic geography, regional growth and decline,patterns of location of economic activity, andregional economic structure were well developeddomains of inquiry. But such work treated theregion as an outcome of deeper political-economicprocesses, not a fundamental unit of social life in

contemporary capitalism equivalent to, say,markets, states or families, nor a fundamentalprocess in social life, such as technology,stratification, or interest-seeking behaviour.Economic geography was a second-order empiricaltopic for social science.’ &dquo;

,

In the early 1980s, in contrast, it was assertedthat the region might be a fundamental basis ofeconomic and social life ’after mass production’.That is, since new successful forms of production -different from the canonical mass productionsystems of the post-war period - were emerging insome regions and not others, and since theyseemed to involve both localization and regionaldifferences and specificities (institutional,technological), it seemed that there was somethingfundamental which linked late twentieth-centurycapitalism, regionalism, and regionalization.

Certain images piqued the interest of socialscientists: the dense vertically disintegratedindustrial districts of northeast-central Italy;Toyota City; Silicon Valley; Orange County; Route128; the citiscie?itifique, Toulouse; Baden-Wurttemburg and Bavaria; and even such lesser-known and less high-tech cases as the London andNew York financial districts; Los Angeles’ garmentdistrict; Hollywood; Jutland; the metalcutters of theHaute Savoie; Sakaki; and hundreds of others. Allof these were said to be manifestations of aresurgence of the region as the centre of ’post-



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Fordist’, ’flexible’, beaming-based’, productionsystems - the emerging face of capitalist industry inthisfiyt de siecle. At a larger scale, it became evidentthat - even with increasing intensity of global tradeand investment flows - national specificities interms of products traded and technologiesproduced were increasing: in certain respects,integration was not bringing similarity, butspecialization, a form of regionalization.

But how important is regionalization? Is theregion somehow a necessary source of thedynamism of the production systems, and hence ofthe developmental dynamics of contemporarycapitalism itself? Or is regionalization merely anexpression of another interesting empiricaldimension of technological and organizationalchanges in successful production systems?

Surprisingly, a fairly large number of social ...

scientists, and not just those whose professionalspecialty is the region, began to respond in theearly 1980s that regionalization was very important,and that it might be more than merely anotherlocalization pattern: it might actually be central tothe co-ordination of the most advanced forms ofeconomic life today (see illter alia, Sabel 1988;Becattini 1987; Bellandi 1989). And so a livelydebate was joined. Over a period of almost tenyears, the initial propositions have been re-examined theoretically and empirically, and newpropositions have emerged. There has been theusual spate of hair-splitting articles, and muchliterature which increases conceptual confusion byoverreading the claims about regionalization andpost-Fordism, or simply polemicizes about theine,,itabilides of globalization and the dominance ofmultinational capital (which it opposes to regionsand post-Fordism, curiously). But the debate everregionalization in contemporary capitalismcontinues to generate fascinating propositions, andfor the first time has been taken seriously by socialscientists interested in such central topics astechnological and organizational innovation andnational competitive advantage in a world economy.The region is also increasingly regarded as a levelof economic policy-making for these reasons, andnot simply as a way to buy political calm, thetraditional reason in much of Europe for regionalpolicy (Bianchi 1992; Bianchi et ah 1988; Lassini1985; Tolomelli (ed.) 1993). The stakes of these

debates are big in both theoretical and practicalterms.

Three main ’schools’ have participated in thedebate: those interested in institutions; thosefocusing on industrial organization andtransactions; and those who concentrate theirattention on technological change and learning.Each has made strong claims about the bases of thenew competition and the role of the region, andeach has inspired empirical research andtheoretical critique. I propose a reprise of thedebate - but not an exhaustive literature review -in order to claim that there is good reason forincluding the region as an essential level ofeconomic co-ordination in capitalism. But, I shallargue, none of the main schools in the resurgenceof regional economies in post-Fordism debate hascome up with the correct formulation of why this isthe case. The critics of each of these schools, whilein no way dismantling the case for regionaleconomies, have shown their attempts atformulating the basis for the resurgence of regionaleconomies to be partial, although often very rich ininsight. The general, and necessary, role of theregion is as the locus of what economists arebeginning to call ’untraded interdependencies’between actors;l these untraded interdependencies,generate region-specific material and non-materialassets in production. These assets are the centralform of scarcity in contemporary capitalism, withits fantastic capacity for production of standardizedoutputs, essentially because they are notstandardized. All three of the most importantrecent schools of debate have something importantto contribute to our understanding of theseinterdependencies, but none of them has yet gotthe formulation right. The region, in this analysis,is important as an underpinning for theseinterdependencies, which allow actors to generatetechnological and organizational change; hence, theregion is a key source of beconrlrrg- of development- in capitalism.

Such an analysis, I shall argue, involvesomething different from the hard ’productionsystems’ (especially input-output relations)orientation of most regional economics, as well asof most of the economics of industrial organizationand technological change. It also has majorimplications for how we think about the problem of



Rendszergazda

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regional and industrial policies, both for certainkinds of ’motor’ regions and for those indevelopment. In illustrating this point I shallconclude by making some remarks about regionalpolicy in contemporary Europe.

Institutions and industrial divides and theill-fated debate over small firms

From the mid-1970s, Italian scholars calledattention to the different development model whichcharacterized the 1BTOrtheast-Centre (NEC) of theircountry, dubbed the ’Third Italy’ by Bagnasco(Bagnasco 1977). In the English-speaking world,the industrial systems of that region were madefamous by Piore and Sabel in 1984 (Piore andSabel 1984; see also Sabel and Zeitlin 1985),which they were the first to capture as a model,that of flexibility plus specialization. Generalizingfrom Italy to certain other cases (notably German),they then placed the success of such forms ofproduction in macro-economic and historicalcontext and postulated the possibility of an’industrial divide* separating a putative era offlexible specialization from that of post-war massproduction.

Their account was both empirically rich andtheoretically powerful. It incited a debate whichcentred mostly on the empirical material theyadduced to support the theory. Yet it was thetheory (and the elements of it which were leastpicked up in the subsequent debate) that makes, inmy view, the lasting contribution to ourunderstanding of capitalist development in generaland the status of the region in particular. Piore andSabel echoed and paralleled the work which hadbeen going on in Florence under the direction ofGiacomo Becattini, who had become one of themajor contemporary students of Alfred Marshal, inseeking the analogy between what was happeningin Italy and Marshall’s notion of ’industrialdistricts’ in late nineteenth-century England.Becattini’s Florentine group engaged in asystematic elaboration of the concept of a’Marshallian industrial district’, turning both on itseconomic characteristic (externalities lodged in adivision of labour) and on the socio-cultural

supports to inter-firm interaction within anindustrial district, this latter both throughtheoretical work and through very detailed studiesof the history and structure of Tuscan industrialdistricts, especially that of Prato, the wool-makingdistrict next to Florence (Beccatini 1991; Balcstri1982).The critics of the empirical account centred on

the lessons of the ’Third Italy’. They took twodifferent routes. The first and least powerfulattempted simply to deny the characteristicsattributed by Bagnasco, Becattini, Bellandi, Brusco,Russo, Sforzi, Solinas, Dei Ottati, Trigilia, Regini,and Piore and Sabel, to the industrial systems ofNEC Italy. These failed attempts at criticism restedsimply on either a misunderstanding of the Italiansystems, in empirical terms, or on an overreadingof the model:

I Some critics argued that the Third Italy wassimply backward: a return to the putting-outsystem (Lazerson 1989). But this never heldsignificant weight because the strictly _

hierarchical relationships and fixed roles ofputting-out systems are not present. , .

Impannatore arc not nineteenth-century Englishcapitalists. A branch of this critique attacked thenotion that there could be a mix of collaborationand competition (cf. Axelrod 1984), ormoderated competition, in contemporaryindustrial systems (Amin and Robbins 1990);but, apart from claiming ad Irorrrirrerrt that thisassertion was utopian, the critics never offeredempirical documentation to the contrary,whereas the Italian scholars offered richhistorical and contemporary evidence of the

particularities of competition and collaborationin their regions (Piore and Sabel 1984; DeiOttati 1987; Lorenz 1988; Sabel and Zeitlin1985; Scranton 1985; Sabel 1993; Sabel et al.1989; Bellandi 1989; Bursi 1989).

2 There was a virtual flood of articles hagglingover the definition of ‘flexible’. were firms reallymixing products or changing rapidly betweenthem? If the latter, then they w eren’t flexible.Were economies of scale just hidden by networkrelations (Gertler 1988; Castillo (ed.) 1991)?

3 There was a spate of predictions that the ThirdItaly would shortly be swallowed up by big firms,



194

that they too would put out everything to ThirdWorld regions, and that the system was nothingbut a temporary blip in the progress ofintegrated, hierarchical, global capitalism basedon scale economies, territorial decentralization,and all the rest (Amin and Robbins 1990;Harrison 1989a). These assertions that the bigfirm would come to dominate everything were, atbest, gross exaggerations, especially for the casesof the Third Italy, which turn out to be as robustas anything around (see for example Colombo etal. 1991; Bellandi and Trigilia 1990; Forlai andBertini 1989; Balestri 1991): not perfect, butapparently not on the route to disappearance orconvergence with Anglo-American models ofindustrial organization.

4 There was quibbling over ’what Marshall reallysaid’, or what he meant to say: were his remarkson industrial districts primarily within theneoclassical paradigm (Saxenian 1994) (yes, forhis economics) or leading towards a departurefrom it (yes, for his remarks on the culture ofdistricts).

With hindsight, we may ask why the Third Italyproved to be such a lightning rod for criticism,especially from certain segments of the Anglo-American Left? The answer lies, in part, with thehyperbolic language used by Piore and Sabel inimagining a world characterized by decentralizedindustries, dense institutional tissues, and the sortof collaborative competition they found in theThird Italy; in calling this ’yeoman democracy(Amin and Robbins 1990)’, they seemed to ignorethe realities of most industrial systems and most

working lives in the advanced capitalist w~orld, notto mention the worse situations of the ThirdWorld.But in part, the reaction revealed the ideological

rigidities of the academic left,2 many of whomrefused to see that the Third Italy, as well ascertain other European industrial communities,really were, and are, different from what they knowin their own experiences. This was especially thecase for Anglo-Saxon academics who could notimagine that skill-based, decentralized productionsystems could exist on the Continent, in the sameway that many attempted to fit the Japanesereinvention of high-volume production into the

conceptual box of Anglo-American ’big capital’ and’mass production’. In adhering to deterministicnotions about ’capital’ and industrial organization,’globalization’, and ’labour’ as the mass worker,these critics denied the possibility of historicalchoice in capitalism, largely in contradiction of theLeft’s meta-theoretical commitment to capitalismas a system driven forward by political forces andsocial relations (Pollcrt 1991; Scott 1993a;Williams et al., 1987; Trigilia 1986). ,

Even more unfortunately, these spurious hits atthe Third Italy got mixed in with a number ofserious criticisms of the flexible specialization-industrial districts thesis, sometimes by the samecritics mentioned above. Much of the problemstems from Piore and Sabel’s attempt to root their

deep theoretical claims about institutions, thedivision of labour, and the possibility of industrialdivdes, in the specific model of flexiblespecialization and to draw on Italian and southernGerman examples as their principal empiricalsupports, for the generalizability of the specificempirical traits of those cases is limited.

1 Production systems dominated by small firms,especially the exceptionally small firms of theThird Italy, are few and far between in thisworld; so it gives a wrong impression to base thepossibility of an industrial divide on small firmexamples.

2 A model of an industrial divide needs to cover awide sectoral composition, and the Italian andGerman examples concentrated on traditionalnondurables or on specialized supplier (forexample metalworking) industries, or on luxuryversions of mass production (such as Germancars).

3 There are deep historical roots to the Italian andGerman examples, although none springsdirectly and continuously from history ortradition;3 still, the critics asked how it could beexpected that in other regions similar forms ofindustrial skill and co-ordination could be builtde 1101’0. This was a valid doubt about the

collaboration-competition thesis: if it was aparticularity of the conventions of certainregions, what about other regions with moreorthodox (that is Anglo-American) competitivenorms?



195

4 were these just ’niche’ producers, enjoyingfavourable market positions ~~~hile massproducers would occupy the central terrain oftheir respective sectors? The critics said yes(Harrison 1989a and b; Del Monte and Esposito1989; Luria 1988); the flexibilists said that thecentre, too, was giving way to flexible, highvolume, ’lean’ production systems (Hakansson1987, 1989).’~ Here, the valid critique of theinitial ’flexible specialization’ thesis concerned itsempirical cases; but to hold firm, the criticswould have had to show that there was no

significant big firm version of flexibilization.Some attempted to do just that, claiming thatToyota was not really much different from anyother mass producer and that big firms like IBMwere really where the action was. But the bulk ofthe analyses - from Ohno himself to bothJapanese and foreign observers of Toyota -claimed the opposite, and the recent fate of IBMcasts a heavy shadow on assertions that flexibilityis an affair at the margin of markets. Still,though Piore and Sabel did assert clearly thatthere was a convergence between big and smallfirms, they overdefined a general flexibilizationof production as a particular model of flexiblespecialization within vertically disintegrated,small firm industrial systems. To this day, onecannot have a debate about flexibility as ageneral characteristic of contemporary industrialsystems without it being confused with thespecific model of flexible specialization in thesense of Italy and Germany. And this is trueeven with attempts, such as that of Hirst andZeitlin (1992), to distance flexible specializationfrom empirical contours of Italy and Germany,by rebaptizing it an ’ideal type’, for the ideal typeretains the strong image of small firm, co-operative, and regionalized input-outputrelations.

5 In drawing on the extreme case of localization,that of the Third Italy, the flexible specializationschool opened itself up to the obvious criticismthat most competitively successful productionsystems do not approach that level of regionalclosure (Gordon 1990). Toyota City is, in thisview, to be considered merely another exception.

6 The most important criticism, but one which wasleast precisely formulated by the critics, is that

the flexible specialization model did not define,in analytical terms, precisely what it was thatdistinguished a technologically dynamicregionally rooted system of firms from thosesystems of firms that did not share these

characteristics, but still appeared to be flexibleand specialized. They correctly understood thatthe flexible specialization model was onlyinteresting to the extent that such productionsystems were technologically dynamic and nothighly territorially mobile; but the wordsflexibility and specialization do not necessarilycorrespond to these characteristics.

Even certain strong critics of the flexible

specialization thesis essentially duplicated itsarchitecture, and filled it in with different data.Leborgne and Lipietz (1992a and b), for example,countered Piore and Sabel by developing anaccount rooted in the Parisian RegulationistSchool’s notion of ‘mode of regulation~. Theyreplaced vertical disintegration and small firms withquasi-integration - that is, dense but somewhathierarchical input-output relations between firms,usually involving big order-givers and smaller ,:

supplier firms (a more elegant version of what isknown, fashionably, in France, as partenariat; inplace of the resurgence of regional economies, theyproposed the alternatives of dense quasi-integration with regionalization and thin quasi-integration, which they associated with territorialdispersion. The whole thing, like flexiblespecialization, is held together by historically andgeographically-specific politics a11d Í11St;WÛ011S (thatis modes de régulaÛoll): labour market rules andinterfirm relations which force industrial systemsdown one or other of the pathways of quasi-integration. Their model of competitive success, itshould be noted, bears great similarity to thatadvanced by Wolfgang Streeck (Hyman andStreeck (eds) 1988) for the German case, but usesa somewhat different language (drawing onEnrietti’s (1983) quasi-integration rather thanSchmitter’s (1979) corporatism), and adding in aterritorial component which is not explicit inStrecck. In any case, both approaches are explicitlybased on choice in industrial history, determinedby political arrangements and institutions whichgovern production systems.



196

But these authors also duplicate the weak pointof the flexible specialization model, in replacingone canonical form, flexible specialization (or itsalternative, industrial failure) with another densequasi-integration (or its alternative, thin quasi-integration, hence competitive failure). Hence,their model suffers from the same problem ofempirical coverage as that of flexible specialization:there are clear examples of competitive successwithout high levels of vertical disintegration andwithout quasi-integration, notably the Third Italyor Hollywood (Storper and Scott 1989), and clearexamples of competitive success andregionalization, without overwhelmingly denseregional input-output relations, as in Silicon Valley(Gordon 1990). The model is rich and provocative,but its ’empirical alternatives do not cover all formsof regionalized, competitively successful, flexibleproduction, as such a model must if it is to beaccepted as the general explanation for thesephenomena.The literature, at least among students of cities

and regions, gave disproportionate attention tothese problems of whether the empirical versions offlexibility, a deepening division of labour, andregionalization were adequate or not, andinsufficient attention to the fundamentalcontributions of the Italian School, Piore andSabel, and others to the study of contemporarycapitalist development. These contributions, itseems to me, consist of four points which remainunchallenged.

First, technologies of production and division oflabour in production are not dictated by amovement towards a globally optimal, foreseeable’best practice’ for each sector. They are, rather, theoutcomes of institutional pressures and choicesmade at critical points in the histories of productsand their markets, and the direction ofdevelopment is thus not necessarily towards greaterscale and integration, but can be the reverses It is,moreover, possible, that radically diffcrcnt forms oforganization will coexist in the same sector, in thatefficiency can be composed of different factors(scale versus scope, profit versus operating margin,and so on). Production is politicized not just in thesense of distributional relations, but at its veryheart, in the sense of defining what is made andhow it is made, even within a world of market

competition, which has a less powerful levellingeffect than is imagined by orthodox theory (Sabeland Zeitlin 1985; Nelson and Winter 1982;Storper 1985a).

Second, the flexible specialization school gotsomething basically right in identifying flexibilityand specialization as fundamental alternatives tomass production. It is less important that theirdefinitions were not sufficiently wide or precise toaccommodate the many different ways that

flexibility (internal, external, static, dynamic,products, processes, adjustment, and so forth) cantake form, or the many different ways thatspecialization can be organized (production units,firms, and so on). From IBM to Modena, theseprinciples have not been challenged, though we arelearning that the precise ways they are organizedinto industrial systems take us frequently far fromthe ideal types of Italy and southern Germany. Aconsequence of both these observations is that the’industrial divide’ postulated by Piore and Sabelhas probably been crossed, in the sense that thepost-war mass production economy is beingreplaced by one characterized by greater flexibilityand specialization, but the imagery whichassociated that with Italy and southern Germany,or even with Japan, was much too restrictive. Thestrength of the analytical insight regardingflexibility-plus-specialization is testified to by thefact that it has made its way into virtually everyimportant theory of the firm and the productionsystem in ’post-Fordism’, including the high-volume, lean production models of Japan (Aoki1988; Dosi el al. 1988; Dore 1987; Cohendet andLlerena (eds) 1989; Best 1990; Porter 1990;Powell 1987; Thorelli 1986; Illeris 1990; Maritiand Smiley 1983), and the language of flexibilityplus specialization is now employed openly bycorporate managers themselves when theyrestructure (as in the case of IBM).

Third, though the original examples ofrcgionalism were much too pure, it seems clear thatthe dynamic forces in contemporary capitalistdevelopment are both localized and territoriallyspecific. This insight, too, has become commoncurrency not just among regionalists, but amongeconomists (Krugman 1992; Dosi et al. 1990;Porter 1990; Amendola ei al. (1992) and studentsof technology and trade. The contribution of the



197

flexible specialization school was to assert that thisseemed to have something to do with regionalizedand territorially specific institutions, though thiswas not stated as clearly as would have beendesired ten years ago.

Fourth, the key texts of this school emphasizethat appropriately institutionalized networks areessential to successful ongoing adaptation of aregional economy in the face of uncertainty(technological, market, and so on). This adaptivecapacity is not available to othcr forms of industrialorganization (such as canonical mass production);but neither is it available to regional economiesbased on networks which lack appropriateinstitutional forms of co-ordination, which is thekey to survival of the economy as a whole. As weshall see later on, the flexible specialization school’sanalysis of networks of firms differs in very criticalways from the use of network paradigm in muchbusiness and organizational analysis. Somethingapproaching a new orthodoxy has arisen in theacademic business economics and managementliterature in recent years, a network paradigm fororganizing production systems. Participation insuch networks is akin to a new best business

practice, in much of this literature, much in theway that mass production was best practice threedecades ago. There are now detailed micro-economic anal}-tics for such a production paradigm,from single firms to wholcfilières. They differfundamentally from the main points of flexiblespecialization schools, where little emphasis on asingle best practice or on the notion of optimumhas figured to date; the latter is explicitly abouteconomically imperfect but politically supple andstrong forms of industrial adjustment in the face ofuncertainty.

Having said this, however, and as noted above,the flexible specialization school itself did notdevelop an analytical language about ongoingindustrial adjustment - or what is now called’learning* - sufficient to capture in a generalizableway the nature of flexible and specialized industrialsystems that have long-term sun-ival capacitywithout wage-price reductions, from those whichdo not. It is precisely to this criticalunderdeveloped analysis that we will return later inthis article.These are the fundamental lessons which

remain, in my opinion. We shall come back to themin the final section of this article in reassessing therole of the region.

Industrial organization, transactions,agglomeration: the Californian school ofexternal economies

~Vhat woe might call, for lack of a better term, the’Californian School’ came at the problem of newproduction paradigms and the region from theperspective of different industries, and a differentpolitical-institutional setting, from those describedabove; as such, it is not surprising that they alsochose a different theoretical route. In the early1980s, Allen Scott was already theorizing therelationship between the division of labour,transactions costs, and agglomeration, in his initialstudies of the women’s clothing industry in LosAngeles. Just shortly thereafter, with no real priortheoretical disposition, Susan Christopherson andI, in studying Ho113-~~-ood’s film and televisionindustries, observed a strong process of verticaldisintegration (Christopherson and Storper 1986;Storper and Christopherson 1987); Piore andSabel’s book (1984) appeared while we wereinterpreting our empirical results. Otherinvestigations, many carried out by Scott and hisstudents, followed, and both Scott and I continuedthis work with our own investigations in France andItaly in the mid- and late 1980s (Scott 1988b; Scott1986; Scott and Angel 1987; Scott and Storper1987; Scott and Kwok 1989; Scott 1991; De Vet1990). Other geographers and regionalists, such asJohn Holmes, took interest in the division of labouras well (Scott and Storper 1986; Holmes 1986).The argument that emerged rooted flexibility in

the division of labour in production, and linked thatto agglomeration via an analysis of the transactionscosts associated with inter-firm linkages. Inessence, it took what seemed to be fact in theItalian cases and created an economic model of the

agglomeration process (Scott 1988a; Scott 1993b).It assumed that certain exogenous or endogenousmarket conditions gave rise to uncertainty - shiftsin market conditions, or movements along atechnological trajectory, for example. Thisuncertainty is met by deepening the division of



198

labour, in one case to minimize exposure to risks ofovercapacity (both production and labour forcehoarding), in another to maximize the benefits ofspecialization and minimize the danger oftechnological lock-in.

In turn, disintegration of production, caeterisparibus, raises the transactions costs of tradedinterdependencies (input-output relations). Thereare more transactions external to the firm, andthese transactions are, in a number of the empiricalcircumstances identified, more frequent, lesspredictable, and more complex. This raises theircosts with geographical distance, and the feasibilityof carr5-ing out substantively complex transactionsdrops for certain kinds of complexity (especiallynoncodifiable or tacit knowledge or where trust isrequired and full contingent contractingimpossible). So agglomeration is an outcome of theminimization of these transactions costs, wheresuch minimization outweighs other geographically-dependent production cost differentials.

This organization and cost-related explanationholds that agglomeration is one element in theexternal economies which attach to interdependentproduction systems; under the circumstancesspecified above, those external economies aremaximized in the presence of agglomeration, forwithout agglomeration, the advantages ofinterdependence - flexibility, risk minimization,specialization - are reduced (or, in the extremecase, overwhelmed) by the costs or difficulties ofthe intensified transacting. External economiesthemselves have to do with the way flexibilitylow ers input costs (by minimizing hoarding) andraises the possibility of reshaping the input-outputchain with less loss than would otherwise be

possible. (A technical issue debated by economistsis whether these economics are truly external, inthe sense that we don’t really know whether theproduction functions of firms are trulyinterdependent and whether their returns toinvestment are uneven; all we do know, withcertainty, is that the ensemble of firms has costsavings due to interconnections and these costsavings are enhanced by geographical proximitybecause it lowers the resulting transactions costs.)This analysis thus partakes of a major trend in

the business economics literature, shared also bymuch economic sociology: the economics of

nenvork forms of production (Powell 1990; Aoki1988; Foray 1990;Johansen and ~’1attson 1987;Lecoq 1989). It seemed to have several advantagesover the institutionally-inspired flexiblespecialization school. First, it did not seem todepend on thick and historical institutionalcontexts. Indeed, one of the main claims we madehas to do with the establishment of new industrial

spaces. ‘’4’e argued that new industries - thosewhich emerge after technological branching points- have input structures which are independent ofold industries - and hence enjoy what we labelled’windows of locational opportunity’, in the sensethat they are not attached to old stocks of externaleconomies (Scott and Storper 1987). But once agroup of firms begins to get ahead, the proliferationof external linkages gives them advantages whichrapidly attract new entrants and hence, only a fewmajor new agglomerations form in a given newindustry. So we offered an explanation, for newflexible production agglomerations such as SiliconValley.

Second, we argued that older industries,analogous to those found in the European cases,could be accounted for via the process ofexrternalization and interlinkage of firms - the storyof Hollywood, going from its own version of ’mass’production and tendencies toward spatial diffusiontoward vertical disintegration and re-agglomeration- was a case in point. V’e averred that there couldbe many reasons for such switches in the

organizational and geographical pathways ofdevelopment - in Hollywood, it was regulatory andtechnological changes which set the process inmotion (Storper 1989); in the Third Italy, it was acombination of long-standing civic cultures and theevents of the post-war period (Becattini 1978;Brusco 1982; Cappechi 1990; Ritaine 1989); in theLos Angeles fashion industry, it was endogenouschanges in fashion and the possibility of makingdistribution more attentive to consumer demand,enhancing the number of collections per year(Pitman 1992). Another major case would beconsumer durables industries, where technologicalchanges in production and distribution madepossible more rapid changeovers; once thesepossibilities wcre realized by the Japanese, all worldcompetitors had to follow suit. The list could goon, ad iiifiriititni.



199

The coverage of the model, in other words, wasmeant to be greater than the initial version of theflexible specialization model, in that it allowed anymix of firm sizes, any sector, any mixture ofinterlinkages. Indeed, we defined the model aroundthree groups of sectors found to account for

increasing proportions of employment, output, andvalue added in industry - high technology,revitalize craft production, and producer andfinancial services - thus extending our reach.As the debate proceeded, however, we realized

that the linkage-transactions cost model wasincomplete. Toward the end of the 1980s, webecame more sensitive to the possibility that theagglomeration was a source of industrial dynamics.We held that agglomerations, once in place,constituted industrial communities where

endogenous dynamics of knowledge and technologydevelopment occurred, drawing on the example oftechnology development in Sassuolo documentedby Russo (Russo 1986), and extending this to ourown Californian cases (Cooke and Morgan 1990;Storper and Scott 1989; Scott and Storper 1991).This account of technological innovation turnsexplicitly on user-producer relations - that is, oninformation transactions in an input-output system- and holds that localization and appropriatecommunication rules are important to innovation insome industries.This latter point brought us to the question of

institutions. Though agglomerations could betheoretically accounted for as the way that potentialexternal economies were realized, there was noassurance that markets alone, nor even variousforms of contracts, could successfully co-ordinatethe nexus of transactions in an industrial

agglomeration. Such transactions - in labourmarkets, in inter-firm relations, in innovation andknowledge development - tended to have points offailure in the absence of appropriate institutions. Inthese two respects - evolution and institutions - we

attempted to go beyond the initial Williamsonianframework to argue that the ’institutional

arrangements’ of agglomerations (Cooke andMorgan 1990; Storper and Scott 1989; Scott andStorper 1991) - that is the nexus of transactionsand their economic performance - were themselvesoutcomes of broader institutional environments,and themselves generators of future choices for

pathways of development. So we came ’full circle’to rejoin the initial authors of the flexiblespecialization thesis, albeit with a somewhatdifferent point of entry and without quite the sameperspective on the role of institutions indevelopment as a whole. In addition, as we shallsee shortly, we came to realize the centralimportance of the new economics of technologicalchange and its core notions of evolution and pathdependency, for our problem of the role of theregion in post-Fordist capitalism.As with the flexible specialization school, there

were spurious criticisms and serious critiques.Among the former, we may count the following:

I the flexible production model was all aboutinfant industry; hardly the case for clothing,Hollywood, or aerospace (Amin and Robbins1990)

2 the flexible production model was about smallfirms. Analytically, the model is indifferent tofirm size, with some of our cases involvingmostly small firms and some not’

3 the flexible production model was not politicallyprogressive, or was somehow normative. Unlikethe European examples, ours included both hightech and low tech, high wages and sweatshops.~ 7And indeed, we deplored the sweatshop versionand, like Leborgne and Lipietz, said it wasultimately doomed to competitive failure due toinsufficient institutionalization

4 the industries we studied often involved long-distance linkages. This was true; but the flexibleproduction model claims not that the degree oflocalism is full or even high, but that it issi@Meni to generate the observed agglomeration(Lung and Mair 1992; Angel 1989; Scott 1988b;Storper and IValker 1989)

5 the agglomerations we studied were not themajority of industry, or the majority of theindustrics we studied. No measurements for or

against this have ever been made, by us or by ourcritics, to my knowledge. But that wasn’t thepoint: we argued that mass production’simportance in its day was as an engine for therest of the economy, and so flexible production’simportance today is not in terms of whether itsestablishments or jobs constitute the majority,but whether they have economically propulsive e



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effeCtS.8 Here again, no measures are available,but the criticism, as stated, has no relevance

This eliminates some of the critical literature,that was based on spurious overreadings of thework itself. But, as with the flexible specializationschool, a serious critique did emerge, bit by bit.

It seems as if the Californian school’s analysisdoes apply to certain modernized craft- ortraditional industries as well as certain labour-intensive manufacturing and service sectors: inclothing, furniture, jewellery, cinema andtelevsion, certain financial services and bankingindustries, as well as certain segments of themechanical engineering industries. The density oflocal linkages is consistent with the account ofagglomeration. In other words, the Californianschool’s successfully analyzed cases overlap verystrongly with those of the flexible specializationschool. The critique does not attempt to denyexistence of agglomerations, nor of their recentgrowth, in other industries, but observes that denselocal input-output relations are not present in themin sufficient quantity to account for the existence ofthe agglomeration. Though, it must be admitted,the critics have not carried out much systematic,rigorous measurement of the geographical extentand density of linkages in flexible productionsystems, they can be given the benefit of the doubt:it seems as if, in many industries - including somethat we claimed as examples of our input-outputagglomerations - the direct local input-output(1-0) relationships between firms are not denseenough to account for either the size of theagglomeration nor for a high proportion of whatgoes on in the sector. The examples where thisseems most applicable are parts of high technologyand certain parts of supplier-intensive sectors suchas mechanical engineering - that is, the capital-intensive, high wage examples of flexibleproduction (Gordon 1990; Veltz 1993).The critics have attempted a sort of counter

theory, which has as its point of departure not theinput-output system, but the frnu (Aoki 1988; Dosiet al. (eds) 1988; Dore 1987; Cohendet andLlerena (eds) 1989; Best 1990; Porter 1990;Powell 1987; Thorelli 1986; Illefis 1990; Maritiand Smiley 1983). The post-Fordist firm is, forthem, a nexus for the management of vast flows of

resources, the principal node in a set of shiftingproperty and production nerivorks. The means forthe firm to manage these networks is a mixture of

ownership, contract, and alliance (Badaracco 1988;Mpdka, 1990; Mowery 1988; Cooke and Morgan1991), and in general, this new flexibility ofnetworks carries out all the functions that

disintegration does in the flexible productionschool’s analysis. Rather than an economy of directcost reduction, even for the most innovativeactivities, we are in an ’economy of organization’,where scale, over long distances, can reduce thetime and cost of flexible adjustments of capacity,products, and so on. Flexibility is retained as a key,but now linked to scale and geographicaldispersion. Much of the causality of the flexibleproduction school’s analysis with respect to regionsis reversed.

Their description of the large firm as a nexus ofshifting relations, and of the industrial system as anexus of nexuses, is at the heart of much of the

contemporary empirical economics of the firm(Hakansson 1987). It is not clear, however, thatthis stands in as an explanation of innovation,agglomeration, or the geography of input-outputsystems. If the flexible economy were reallycontained in such dispersed large-firm networks,for example, why would such firms allow significantparts of their activity to be ’trapped’ in specificcountries and regions? Pavitt and Patel (1991), andDunning (1988), all show empirically that the coretechnological activities of the biggest firms are allrooted in their home countries. Why, indeed,would a firm like IB114 bother with the cost andinconvenience of Silicon Valley at all? Here, theeconomy of organizations school offers aparticularly pallid response, claiming that big urbanareas arc general ’basing points’ for advanced(knowledge-intensive) activities. We are back tourbanization economies. There are two problemswith this. The first is that such an explanation ofbig firm-big city interdependence is necessarily atransactions-based explanation, insofar as thereason invoked for big city location is proximity tofactor markets due to the need for high levels offactor (read: labour) turnover in the presence ofuncertainty. In countries with primate urbansystems such as France and Japan, what appear inthe form or urbanization economies cannot be



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distinguished from multiple and overlappinglocalization economies in, say, Paris and Tokyo.The two ways of interpreting the problem wouldlead to radically different policy prescriptions. Thesecond is that the economies of even the biggest ofthe big cities, but especially middle-sized cities, arenot only urbanized, but have strong sectoralspecificities. So urbanization economies arereinforced by localization. This localization involvesparts of firms, those which are in certaintechnological or economic ’spaces’ in the sensedefined by Perroux (1950).One suspects that the model they have evolved is

applicable to the flexibilization of rather routineproductive activities - precisely those where marketuncertainty is manageable (for example in the masssegments of clothing) or those where innovation isalso gradual and manageable: this is the spatially-extended economy of organization. The parts ofthese same big firms which are involved in thoseproductive activities are not free of agglomerationnor free of uncertainty in the relevant parts of theirinput-output chains, and its seems unlikely thattransportation, telecommunications and formalinstitutional arrangements (that is strategic alliancesand contracts) are sufficient to obvate the need forproximity in these cases.

In any case, the problem staked out by theflexible production school remains: what are thesufficient conditions for the existence of theobserved agglomerations of productive activity,which grew so strongly in the 1980s? TheCalifornian school came up with an explanation,but it was partial, and it sensitized us as to theimportance, complexity and geography of input-output relations. But the localization of such 1-0

relations, that is the localization of tradedinterdependencies, is inadequate to the task ofexplaining the link between flexible production andthe resurgence of regional economies incontemporary capitalism.The Californian School’s explanation also

suffered from the same problem as that of theflexible specialization school: the central aspects ofits theory could not distinguish benveen ’good’agglomerations and ’bad’ ones. Verticaldisintegration, high transactions costs, andagglomeration could be found both in high-wage,technologically dynamic industries and in low-wage

technologically-stagnant ones. Adding ininstitutions helps, in the case of traditionalindustries, to technology-intensive sectors. In someof these latter industries, technologically-dynamicagglomerations could be found withoutoverwhelmingly dense local 1-0 linkages andwithout the kinds of explicit institutional co-ordination found in many European industrialdistricts. A different explanation was needed.

Innovation, high technology, and regionaldevelopmentThe subject of innovation is prefigured in theschools of thought reviewed above, thoughinnovation is seen in both as a consequence of theinstitutional or organizational frameworks ofproduction. From the late 1970s on, students ofregional developments investigated the regionallyuneven distribution of high technology industriesand the apparently better propensity of some,regions to develop ’high tech’ economic bases thanothers (Malecki 1984; Breheny and McQuaid .1988; Glasmeier 1986; Todtling 1992). Defined assuch, their problem was not the same as that of thetwo schools of thought reviewed above: but rather abroad problem of a change in productionparadigms - flexibility and its consequences - theydefined their subject as that of the incidence ofindustries based on new technologies. Theempirical subject matter nonetheless overlappedwith the preceding schools in certain cases;Saxenian’s work on Silicon Valley falls securelyinto the institutionalist flexible specialization school(Saxenian 1988), and Scott and Storper and othersargued that high technology developments could beunderstood from the standpoint of their theory ofagglomeration and the division of labour (Scott andStorper 1987). What distinguishes the workreviewed here is that their point of departure wastechnology, mostly high technology, and regionaldevelopment.

Its interest, it seems to me, is that in using hightechnology as a point of departure, they attemptedto isolate cases of ‘advanced’ regional development.They assumed that by studying areas that hadbecome centres of production for advanced



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technologies, there would be lessons forpolicymaking (how to imitate these places), and -for some of these scholars - there would be lessonsabout advanced economic development in general,and the role of the region in those forms ofdevelopment. Much of this, it must be said, was notapparent in the early literature on high technologyand regional development; the research wasmotivated straightforwardly by the high rates ofgrowth in places such as California andMassachusetts and the desire to figure out how toget a part of the action. Little was said, initially,about the qualities of that growth or its possiblebroader significance in contemporary capitalism. Asecond concern of the literature is Schumpetarian:what occurs to economic activities affected bywaves of radical technological change?Two branches of this work can be reviewer here.

The American School of high technology regionaldevelopment sought the conditions for growth inSilicon Valley and Route 128 (Markusen et al.1986). What was it that had set off and sustainedgrowth in these places? The work identified manydifferent factors said to have contributed to these

processes, among which the single most discussedis the research university-spin off process. Drawingon the American interest in entrepreneurship (anda strongly American reading of Schumpeter), andon the key experiences of Stanford University-Silicon Valley, MIT-Route 128, an abundantliterature on R&D and regional development wasgenerated. To this was added a list of secondaryfactors said to be present in successful high techregions, among which were a ’high quality of life’,good infrastructure, even climate (although howBoston could figure there is a mystery). It doesappear, from the American historical record, thatthere were decisive links between universities andfounders of firms in the Massachusetts andCalifornia cases. The problems come when this istaken to be a universal logic of new technologybased infant industry development. The logicworks only when innovation is strongly formal-science based, as in the early years ofsemiconductors. It was not true, for example, in thecase of aircraft in the 1920s and 1930s, where noresearch universities were strongly present in theleap forward of Los Angeles (Gauthier (1992);Scott 1990; Storper 1982). To this the high tech

school probably would respond: ’that was then, thisis now’, for organized science has become moreand more important in the development of newtechnologies (Storper 1985b). So they predict thatthe university-production link will be critical infuture technology-based industries, such asbiotechnology.Assume (for the sake of argument) that this is

the case. The question is how to theorize what it is,specifically, that leads from research to theestablishment of a regional production base. Forthere are many research universities, and evenmany which have generated lots of knowledge insemiconductors, but there is a much smallernumber of Silicon Valleys and Route 128s. Sothere is something untheorized about what actuallymakes the interaction virtuous. The CalifornianSchool discussed above offered a partial responseto this, by noting that what distinguishes nascentagglomerations from other early centres is the rateat which their external economies grow due to the

proliferation of input-output linkages (Scott andStorper 1987). But this observation, while essential,is insufficient: it does not plug up the gap inknowing what it is about the kind of knowledge orits transfer to producers that makes R&D presenceeffective sometimes and not effective in other timesand places.A second branch of the American school is what

we might call the ’regional politics’ approach(Markusen 1985; Markusen et al. (1986);Markusen el al. 1991). It holds that regionalcoalitions secure resources that push for thetransfer of high technology resources: thus, SiliconValley got ahead partially because of the Stanfordconnection, but also because its early industrialistswere clever enough to commandeer resources fromthe military-industrial complex. Indeed, much ofthe ’gunbelt’ developed because of politics,especially its key complexes in New England andsouthern California. Here again there areinteresting observations, but they fall far short of acoherent theory. For one, the southern Californiaaerospace complex was in place well before thegrowth of the military-industrial complex: its rootswere in the success of Douglass Aircraft’s DC3 inthe 1930s. The military followed that installedtechnological competence; it did not place it therein Los Angeles. For another, there are lots of



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places where politically-motivated investments havetaken place (Texas, Georgia, Toulouse, Nice) butnothing approaching a diverse and dynamic hightechnology agglomeration has been created. Politicsalone doesn’t do the trick.The problem, then, is that the American school

has not come up with a theory of high technologydevelopment or any necessary link to regionaldevelopment. No underlying logic of theseprocesses has emerged from its considerable, andinteresting body of empirical work.An alternative, European, approach has been

developed by the GREMI group (GroupementEuropeen des Milieux Innovatcurs), principallyFranco-Italian-Swiss regional economists. Theircentral theoretical notion is that of the nulieir.There are many different branches of this

approach, many of them very rich; I shall attemptsimply to summarize what I see as the centraltheme which encompasses them all, with apologiesto those who feel that their work is inadequatelydistinguished from the whole (Aydalot 1986;Aydalot and Keeble 1988; Camagni (ed.) 1991;Maillat and Perrin 1992; Maillat et al. 1993;Maillat et al. 1990; Camagni 1992).The milieu is essentially a context for

development, which empowers and guidesinnovative agents to be able to innovate and to co-ordinate with other innovating agents. The milieuis something like a territorial version of what theAmerican economic sociologist Mark Grano~~etterlabelled the ’embeddedness’ of social andeconomic processes (Granovetter 1985). Themilieu is described, variously, as a system ofregional institutions, rules, and practices whichlead to innovation. Many of the milieu theorists usethe ’networks* as their principal organizationalmetaphor. For some, the milieu is itself a networkof actors: producers, researchers, politicians, andso on, in a region. For others, the networkconcerns the input-output system, and it is thisnetwork which is embedded in a milieu, and themilieu provdes members of the network with whatthey need for co-ordination, adjustment, andsuccessful innovation.

Milieu is suggestive of something interesting,which rejoins a key theme of the Marshallianschool: that there is something intangible, ’in theair’ as Marshall would have it, which permits

innovativeness to proceed in some places and notin others (Marshal! 1919). The GRENII group,however, has never been able to identify theeconomic logic by which milieu fosters innovation.There is a circularity: innovation occurs because ofa milieu, and a milieu is what exists in regionswhere there is innovation. The following definitionis exemplary, not exceptional:

A territory is not a defined space of resources. It is themode of establishment of a group, in the natural

environment, which through the organization andlocalization of activities, generates prevalent conditionsof communication-language and collective learning (theforms of cooperation which create technological andorganizational rationalities).

and

The milieu appears as the socio-economic formation

which, at one and the same time, generates theeconomic dynamic and constitutes itself in setting thisdynamic into motion. In other words, milieux take formin organizing themselves and they do so even betterinsofar as they are territorialized. The emergence oforganizational dynamism is correlative to the dynamismof loca! milieux.9

The milieux school returns, again and again, to theproperties of milieux, but they do not specify thepotential mechanisms and process by which suchmilieux function, nor precisely what the economiclogic of a milieux would be - why localization andterritorial specificity should make technological andorganizational dynamics better. Thus, though theyattempt to go beyond the input-output basedmodels of the Californian School, they cannotseem to specify the logic or content of theintangible they arc after. As such, they do notreveal what it is about regions in innovation that isessential to contemporary capitalist development.

Nonetheless, the GREM! group, and inparticular the work of Perrin (1993) hassuccessfully reformulated the problem of whatregional ’science’ should be all about, in calling foran abandonment of regional analysis based on thetwo fundamental precepts of neoclassical economic

science, that is comparative statics (equilibrium),and the rational action paradigm for humanbehaviour. Instead, they argue, the economicprocess is fundamentally about creation ofknowledge and resources, and this ’Schumpeterian’



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(and Marxian as well) process cannot be derivedfrom the calculations of the rational actor on the

margin. How economic actors reason and interactis, they argue, in large part a product of theircontext, and this context is likely to have - at leastin part - territorial boundaries and specificities. Sothe process of economic creativity by such actorsshould depend on their milieu.How, then, to get beyond this impasse to define

in what this context could consist in generating thedynamic of becoming - organizational andtechnological creation - in capitalism?

Technology, path dependency, anduntraded interdependenciesIt was left to a group of non-orthodox economistsand sympathizers in other disciplines - a groupwhich was not principally interested in territorialityor regions, nor even really in post-Fordism per se -to develop the analytical tools which, appropriatelyadapted, now permit us to identify (at leasttheoretically, if not empirically) the intangibleaspect of a territorial or regional economy thatunderlies innovative, flexible, agglomerations, ofboth the high and low tech variety.The first insight came from the evolutionary

economics pioneered by Nelson and Winter(1982), and refined for the case of technology byDosi, Arthur, Soetc and others (Dosi 1987; Dosiand Orsenigo 1985; Dosi et al. 1990; Arthur 1989).They claimed, essentially, that technologiesdevelop along pathways or trajectories, whichdescribe choice sets that are totally different fromthose of orthodox economics. In contrast to thestandard model’s key mechanisms ofsubstitutability and revcrsibility in choice, whereinvestments and returns can always by adjustedwell to each other, they show that choices arecharacterized by strong irreversibilitics and by non-ergodicities (the shape of the function’s curve is’wrong’); as a result, and unlike the orthodoxmodel, it is virtually impossible to predict outcomesfrom a starting point, even if actors are rational,and the outcomes reflect no single optimum, but -at best - optima which are continually redefined aschoices are made and other choices arc foreclosed.

So the relationship between starting point andending point is no longer clear, no longer highlypredictable, no longer amenable to the same claimsabout efficient resource allocation made inorthodox economics. In evolutionary economics,what we do is path-dependent, that is, trulyhistorical; it is not the result of a series of actionson spot markets, where the long term can bereduced to a series of disconnected instants.

All this is the case because technologies are theproducts of illterdepmdent choices, andinterdependency means uncertainty, since wecannot determine exactly what others upon whomour choices are dependent, will do. Technologies,for one thing, are subject to a variety of user-producer and user-user interactions: everytechnology made by a producer must have a user,and as the number of users of a given technologyrises, it tends to cut off the possibility of differentpatterns of use (and hence, production for otherusers). This is, very simply, an external economywhich benefits those who follow suit in both costand feasibility terms (the story invoked by Arthurabout why we all drive on either the right or theleft, even though there’s no efficiency reason, isbecause everybody else does and it would be costlyand hazardous to change) (Arthur 1989) or DaNid’sstory of why we use the inferior QWERTY (Daiid1975) keyboard (because it got ahead of othermodels early).Beyond these external economics-as-accidents-

of-history, there are reasons why producers tend tofollow certain pathways. There are significanttechnological spilloven in the economy: knowing howto do one thing is frequently consequent uponknowing how to do another, or key to doing certainother things (Romer 1990). This idea draws on theseminal work of Franqois Perroux in the 1950s,who noted that an economy consists of ’spaces’ orfields of endeavour, in part having to do with thedensity of non-traded technological connectionsbetween them (for example, common types ofknowledge or similar types of machines, orknowledge of how to work similar types of basicmaterials or inputs) (Perroux 1950). In some cases,these non-traded connections overlap with tradedinput-output relations, that is using similar inputssuch as raw materials or capital goods; but often -and this is critical - the connections are untraded.



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The new economics of technological changesuggested, in the 1980s, that there are knowledgeor ’common practice’ spillovers such thattechnological excellence comes in packages orensembles (Lundvall 1990b; Lundvall and Johnson1992; Beije 1991). Since such excellence reliesfrequently on knowledge or practices which are notfully codifiable, the particular firms who master itare tied into various kinds of networks with other

firms, both through formal exchanges and throughuntraded interdependencies. The latter includelabour markets, public institutions, and locally- ornationally-derivcd rules of action, customs,understandings, and values (Dosi and Orsenigo1985). Technological trajectories, in certain cases,are parallel or complementary with othertechnologies. Firms thus become dependent ondecisions made outside their borders by other firmsor decisionmakers in the technological space(Storper 1989; Young 1928; Kaldor 1972). lvhcnthings are going well, external economies -interdependent production functions, andimperfect relationships of investment to return -are strongly positive for the ensemble ofinterdependent actors travelling down thesepathways (and there is, in technical terms, noambiguity about these effects being defined as trueexternal economies).The evolutionary economists point out that such

a framework necessitates a change in focus ofattention in economics generally. Theyacknowledge two forms of competition -allocational, which is the basis for comparativeadvantages - and technological, which is the basisfor absolute advantages. Orthodox economics ismainly concerned with the way the market allocatesresources and assumes that structural change anddevelopment follow from either the additive forcesof this allocational process or from exogenousinfluences such as technological or demographicchange. Evolutionary economics holds thattechnological change is an endogenous property ofeconomic systems and that it is not principally theresult of allocational adjustments but ofinterdependent actions in which the signalling,knowledge development and doing the best one canarc central (Dosi et al. 1990).The evolutionists reinterpret the effects of

competition in capitalism va this distinction.

Comparative advantages are had when the positionof a firm or of a group of interdependent firms in anation or region find a more favourable locationalong a given production price frontier: they areallocational. This is familiar to everyone who hasever taken an economics class. But, claim theevolutionists, this isn’t what drives the distributionof market shares or the composition of economicactivities in many cases. Absolute advantages existwhen a firm, nation, or region possess superiortechnologies such that virtually no set of alternativefactor prices (production costs, in essence) wouldserve to effectuate a redistribution of shares oractivities. And this, they claim, is an aspect of thedynamic of capitalist competition wholly overlookedby the orthodox theory of competition-as-allocation.So what does all this have to do with the themes

of post-Fordism and flexibility? The evolutionaryeconomics presented thus far is in the realm ofbasic theory, but it can be applied to areinterpretation of the mass production-post-Fordism question. In the system of massproduction, absolute advantages certainly were heldby certain major firms. And in the post-war period,a lot of these firms were American. In the earlypost-war period, indeed, American firms (asstudied by Chandler (1977) or described byGalbraith) had such technological advantages thattheir higher unit factor costs (wages, especially)were of little consequence (Chandler 1966; Aglietta1976). But ultimately those firms ceased to makerapid technological progress within the massproduction paradigm, for a variety of reasons which«-e cannot discuss here. Their technologies becameimitatable, and the absolute advantage disappeared.A race for comparative advantages was set inmotion, both between the US and Europe and viareallocation of production activity from thenorthern to the southern countries, in search of thelower costs within a technological paradigm, whichis the linchpin of Ricardian comparative advantage.

Ultimately, however, the struggle for worldmarkets began to take another form. From a varietyof places -Japan in consumer durables, Italy innondurables, Germany in mechanical engineering,and so on - new forms of production, not based onmass production methods, but instead orientedagain toward the technological lea m il1g which had



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once characterized competition within massproduction, began to emerge as competitivestandards on world markets.10 And so,technological trajectories were ’re-opened&dquo;, and thewestern world was once again, and still is, a vast’learning economy’, in the felicitous phrase ofLundvall (Lundvall and Johnson 1992). Theparticular contours of this learning economy aremuch as described by the new business economicsand the various schools of flexibility. But what isimportant is the notion that it is not flexibility per sethat is the central theoretical element of the current

age, but flexibility (and many other features ofcontemporary production systems) as a means totechnological learning and the absolute advantagesit is generating for learners. V’e learned then (inpost-war mass production) and we learn now; butwe are learning within different meta-paradigms,with different basic technological capacities, at adifferent point in history.The evolutionary economists «-orking on

technological change, not surprisingly, discoveredterritory - nations and regions. In theoreticalterms, they began to reason that the technologicalspillover and their untraded interdependencieswould be territorialized under certain conditions,notably w here the technological trajectories wereparticularly open, that is had wide margins ofpotential variation, thus increasing theuncodi6ability and tacitness of knowledgedevelopment and the importance ofcommunicational clarity and commoninterpretation in understanding information(Lundvall 1990b; Lundvall 1992).

In other words, the territorial agglomeration ofcertain untraded interdependencies and spillovers,or the territorial differentiation of the same, bypermitting actors to travel along superiortechnological trajectories (or to do so more rapidlythan others) can confer on them absoluteadvantages which shelter them, at least temporarily,from Ricardian competition. This would show upas territorial specialization and differentiation intrade, whether between regions or at theinternational level (Patel and Pavitt 1992).~~ Andthe more learning going on in the world economyas a whole, the more we should expect, all thingsbeing equal, such territorial agglomeration ordifferentiation.

The argument can be summarized now, as the

following:

1 Technological change is path dependerrt2 It is path dependent because it involves

interdependencies between choices made overtime - choices are sequenced in time, notsimultaneous, and often irreversible

3 These choices have a spatial dimension, which isclosely tied to their temporal uncertainty andinterdependence. Some inter-organizationaldependencies within the division of labour, thatis input-output or network relations involve somedegree of tcrritorialization. But in all cases whereorganizations cluster together in territorial spacein order to travel along a technological trajectory,they have interdependencies which are till traded,including labour markets, and ’conventions’, orcommon languages and rules for developing,communicating and interpreting knowledge(though direct input-output relations may alsoplay a role here).

’I’here are counter-forces to the territorialization

process, of course. Among them are technologicalimitation, and the ongoing effort to transcendgeographical distance in both the untradedinterdepenencies and input-output relations whichare critical to technological learning. But thoseforces are very far from triumphing, or so it wouldappear from the empirical evidence. Virtually allthe systematic empirical investigations of thetechnological performance of nations suggest thathigh, and increasing, differentiation orspecialization characterize the western economiessince the late 1970s. The main studies includeDosi el al.’s study of international trade (1990),PaNitt and Patel (1991); Pavitt’s many investigationsover the last decade, Amendola et al.’s .

interpretation of OECD statistics (Amendola et al.1992) and Dunning’s study of multinational firms(Dunning 1988). Both Dunning and Patel andPar-itt note, in contrast to the prevailing assumptionthat multinational firms arc indifferent to territoryor to local context, that the major multinationalfirms of the world locate vrtually all their mostadvanced technological capacities in their homecountries and that where there are exceptions, theyare almost always explained by investment in a



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technological core capacity of the host country, thatis they are attracted to the local technological tissueof another country. Jaffe, in the USA, has shownempirically that technological ovcrspills correspondstrongly to the patenting activties of firms (gaffe1986); and Antonelli in Italy has indicated, in avery preliminary way, that overspills are oftengeographically bounded (although themeasurement problems remain considerable)(Antonelli 1987; see also, Todtling 1995).

I began to use the evolutionary paradigm in twopublished papers in 1985 and 1986 to explaintechnological branching points and the appearanceof new high technology centres (Storper 1985b;Storper 1986); I bclieve these wcre among the firstuses of this reasoning to account dynamically forprocesses of regional development. Subsequently, Ideveloped it - drawing on Allyn Young (1928) - totry and explain the ’industrial divide* crossed in thefilm industry, as a path-dependent phenomenon(Storper 1989). Scott and I, later, tried to marrysome of thc evolutionary insights to thetransactional theory of agglomeration, as notedearlier in this article, where we observed that, oncein place, agglomerations as nexuses of transactionshad their own evolutionary dynamics (Scott andStorper 1991; Storper and Scott 1991). Finally, Imore recently tried to show (1992) thatspecialization in international trade corresponds toregional concentrations of industries - what Icalled their ’technology districts’ - and thus thatglobalization of economic activity was linked toregionalization, through the mechanism of localizedtechnological learning (although my theoreticalexplanation relied too heavily on input-outputrelations at that time) (Storper 1992).But it should be noted that the evolutionary

approach is, if not incompatible with thetransactions cost approach to agglomeration, thenat least wedded to fundamentally differenttheoretical commitments about dynamic processesof capitalist development. For the transactions-cost-based theory of the California School is aboutallocation through cost-minimization, withevolutionary path-dependent phenomena anafterthought (Scott 1988a), and this is becausetransactions cost economics is about traded input-output relations. The evolutionary approach isabout much more than allocation and is

fundamentally not about cost-minimization; it isabout the forces that allow the parameters of costminimization to be altered and which get in the wayof optimizing (Dosi et al. 1990; Johansen andh’Iattson 1987). And in terms of mechanism, as wehave noted, evolutionary economics opens up thefield of untraded interdependencies v~hich does notfigure in transactions-based approaches. Eventhough one can argue that untradedinterdependencies are rooted in transactions -though perhaps not il1ptlt-Otl/put transactions andmarket or contract exchanges - the analysis of suchtransactions cannot be easily accommodated withintransactions-cost based theories.As we shall see, this does not mean that the two

approaches are incompatible at an empirical level;but their fundamental theoretical commitments arcundeniably quite different.

From technology to action: The region as anexus of untraded interdependenciesThe evolutionary school of technological changeopened up the question of economic developmentas one of leaming, or ~-ow~, and of untradedinterdependencies as a major feature of thisprocess. But certain limitations remained. As anumber of observers have pointed out, the notionof trajectory was too narrow, in the sense that pre-established ’technological fields’ defined thetrajectories and thc question then became merelywhere firms positioned themselves along it (Piore1989). But what defines the trajectory? And cantrajectories themselves be developed and redefinedthrough actions which fall outside of an existingpossibility set? It is too easy to relegate this kind ofcreative action to major technological’breakthroughs’ or ’ruptures’ in the trajectory, aswhen basic science opens up a major new fteld ofendeavour; new possibilities seem to emerge frommuch more mundane, incremental, modification ofproducts and processes and from new, not formerlyenvisaged applications of basic knowledge. New’branches’ on evolutionary ’trees’ are part of theevolutionary process, not merely the choice ofwhich branch to jump onto.And why limit trajectory to ‘tcchnology’? Surely



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the evolutionary properties of production systemsinvolve more than hardware. The definition of

technology may be stretched to include ’soft’dimensions of technology such as know-how andorganizational rationalities, and this widens thescope of what may be considered a technologicaltrajectory. Learning certainly concerns all of thesedimensions of production: the design of products,processes, know-how, and the evolution oforganizational skills, of the ’science’ of organizationin capitalism. 12

But perhaps even this does not go far enough.There are other dimensions of the evolution of

production systems which cannot easily becaptured via the word ’technology’. All productionsystems involve uncertainty, in the sense that thereis no configuration of markets and firms whichinvolve zero levels of inter-dependency on otheractors. Even in a hypothetical case of a single firmwhere all inputs were produced internally andoutputs resulted, there would still be marketuncertainty to face. In reality, virtually allproduction systems involve uncertainties of severalkinds; between producers in the input-outputchain; between producers and workers, in securingthe labour desired at the price paid; betweenproducers and consumers, especially over time, forall markets involve fluctuations of some sort. Themain way that such uncertainty is resolved isthrough com~ention5, which are taken-for-grantedrules and routines between the partners in differentkinds of relations defined by uncertainty. 13 Thereare different combinations of such uncertainty,giving rise to different possible conventions thatproducers attempt so as to cope successfully withuncertainty. These constitute ’frameworks ofeconomic action’, and different frameworks arepossible for different kinds of products, markets,and kinds of labour: these are ’possible worlds ofproduction’, defined by the ensemble of theirconventions. 14 Such conventions are alwaysdifferent for fundamentally different kinds ofproducts, but they are also often different forsimilar kinds of products, from region to regionand especially from nation to nation, according tothe particular way that actors resolve uncertainty soas to enter into the form of collective action knownas production. Some such ’worlds of production’are more successful than others in competition, of

course, as reflected by their market shares andprofit lev els. But in any case, the evolution of theseproduction systems is strongly dependent on theworlds of production, rooted in their underlyingconventions, constructed in given times and places,and to which producers, workers, and consumersare subject. Industrial evolution concerns theseconventions, for these conventions affect theensemble of dimensions of innovation and changewe have noted above. We might think then about‘trajectories of conventions’, ’trajectories of worldsof production’, or organizational trajectories, as theappropriate object of dynamic analysis ofproduction systems.

Michael Piore made a similar critique, in asomewhat different vein, in a (to my knowledge)unpublished paper a couple of years ago. Heclaimed that the notion of external economies ascontained in Marshall was actually incompatiblewith the Marshall who brilliantly observed that’secrets of industry were ... in the air’. For externaleconomies in Marshall were simply the externaleconomies of scale, due to the external scope of aset of producers tied together by input-ouputrelations. The real effect of ‘in the air’ as untraded

interdependencies was not captured, and could notbe captured, by the term external economies asemployed by most economists. without using theterm untraded interdependencies, Piore called ourattention to the collective and interdependentcharacter of work in industrial districts as a

particular, historically and geographically definedfonrt ofaction; a framework of action defined by acommunity of persons which enables them toproduce successfully in a certain way.

This definition of the problem permits us toanalyze more of the regional economies identifiedby recent scholarship than any of the precedingperspectivcs on regionalism and post-Fordism, andto do so in a dynamic manner.’ We may say that,in technological or organizational spaces, there aremoments when economic assets are more generaland others when they are more specific. Forexample, an old, well-developed, highly codifiable,and standarized technology rests on bothknowledge and physical inputs that are widelydiffused, but highly specific. The elaboration of thetechnology over time, its differentiation into manydifferent products and using more and more



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differentiated inputs, makes the assets of theindustry often highly specific to its firms andproducts. In the late 1940s and early 1950s,product and process technologies were quitespecific for vacuum-tube based electronic products,in what was then an old technology which had littledevelopment left in it.16 But then miniaturizationcame along to replace the vacuum tube, first via thetransistor, and then via the silicon-basedsemiconductor. When new, these technologies hadfew established inputs that were specific to them;they had to ‘im-ent’ their own input chains, and theknowledge going into them, which had not yetbecome highly applications-specific. In otherwords, they began as generic assets which, overtime, evolved into more specific assets. This is onereason why the semiconductor industry was notattached, geographically, to its parent industry -radio and television equipment - on the EastCoast, and instead found its centre in SiliconValley.’7 It had to reinvent its own input chain thuscreating assets specific to the emergingtechnological space. It also had to convert genericelectronic engineers into labour which had skillsspecific to semiconductors - labour which, bydefinition, could not have existed prior to theinvention of the semiconductor. As a technologydevelops and both its inputs and applicationsbecome more differentiated, the technologicalspillovers we mentioned earlier come intoexistence, as cognate fields of knowledge elaboratetheir parameters.

In three ways - the labour market, the input-output system, and the knowledge system - there isa process of becoming specific.

But these three levels are, in my view, not thedeepest levels at which this analysis can beformulated. All three, I would propose, evolve fromgenerality to specificity on a foundation ofconventions which make possible communication,interpretation, and co-ordination among the actorswho are making them become specific. In otherwords, frameworks of action which govern theproduction system evolve from a position ofgenerality to specificity, as they are sedimented intoconventions, practiced by actors, and sometimesembodied in formal institutions and rules. Think ofthis with respect to the semiconductor industry.The hagiographies written in the 1970s and 1980s

(with titles such as Silicon Valley Fever or Life in theHigh Tech Fast Lane) can be reinterpreted in aserious analytical way. They are trying to grasp theemergence of a nexus of conventions - frameworksof action - which are specific to an emergingindustry and also highly regionalized. Certaindimensions of this culture have diffused, globally;but there is only one Silicon Valley if one wants tobe ’in the know’ for the most advanced innovationsin semiconductor technology. Diffusion of theseframeworks of action is highly imperfect andpartial.We know that input-output relations alone have

costs associated with uncertainty in infantindustries that are high enough to bringagglomerations into existence in the early days ofexistence of many industries - the strong point ofthe Californian School’s transactions costs analysis.Yet, as we have pointed out, such geographicalinput-output constraints disappear rapidly in manyindustries, including high technology industries, assome inputs become more standardized and areproduced at higher output levels; for these cases,linkage-based models predict that geographicaldiffusion should be possible. And much diffusiondoes take place, as in the movement ofsemiconductor production to south east Asia andareas other than Silicon Valley in the USA. But inmany cases, less such decentralization (oftenassociated today with ’globalization’) takes placethan would seem possible from the standpoint ofthese geographical linkage costs. Silicon Valleycontinues to hold much direct productive activityand, as an agglomeration, to show essentially nosign of weakening even to this day. Might this bethe case because fliegeographically-constraitieduntraded interdependencies outlive geographically-constrained iizput-output linkages? And could thisespecially be the case when there is actual orexpected high levels of technological ororganizational learning, whether in basic orincremental form? Here, the rules of action thatpermit participants in the production system todevelop, communicate and interpret information, aswell as to develop knowledge, and to develop thepeople who develop and interpret knowledge, mayhave greater geographical constraints than theprocess of trading inputs and outputs. Theconventions to which I refer, in other words,



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underlie the capaci~ies for actiol1 of the actors whocarry out the collective activity known as learning.These conventions are a principal form of untradedinterdependency, along with labour markets. Thus,regional economies constitute nexuses of untradedinterdependencies which emerge and become,themselves, specific but public assets of productioncommunities (assets of co-ordination, that isframeworks of collective action), and whichunderpin the production and reproduction of otherspecific assets such as labour and hardware.

I propose, then, that an answer to the principaldilemma of contemporary economic geography -the resurgence of regional economies, and ofterritorial specialization in an age of increasing easein transportation and communication of inputs andoutputs and increasingly scientific organizationalrationalities of managing complex systems of inputsand outputs - must be sought in two sorts ofanalysis. One is the tension betweenrespecialization and destandardization of inputsand outputs which, all things being equal, raisestransactions costs associated with them.]8 Theother is the association of organizational andtechnological learning w ith agglomeration, which inturn has two roots. The first, and more limitedcase, is that of localized input-output relations,which constitute webs of user-producer relationsessential to information development andexchange, and hence to learning.(Lundvall 1990b;Russo 1986; von Hippel 1987). The other, and Ithink the more general case, is the untradedinterdependencies which attach to the process ofeconomic and organizational learning and co-ordination. here these 1-0 relations or untraded

interdependencies are localized, and this is - as wehave suggested - quite frequent in cascs oftechnological or organizational dynamism, then wecan say that the region is a key, necessary elementin the ’supply architecture’ for learning andinnovation. It can now be seen that theoretical

predictions that globalization means the end toeconomies of proximity have been exaggerated bymany analysts because they have deduced themonly from 1-0 analysis.We need a few additional observations in order

to avoid misconception about the nature of thisproposition:

1 These nexuses of interdependencies are notterritorially concentrated in all industries or at alltimes. The ’demand architectures’ for innovation(and indeed for efficiency in general) vary widelyaccording to the product at hand, as I notedabove in refcrring to different ’possible worlds ofproduction’ for different products; as such,agglomeration is a part of the supply architecturefor innovation and efficiency in only some cases,although much more than is frequently -recognized.~9 Just as with input-output relations,there are particular conditions under whichterritorial concentration is necessary, and

particular conditions under which it iseconomically efficient. The problem is thatbecause scholarship has concentrated so muchon traded interdependencies, input-outputrelations, we have little systematic knowledge ofthe geography of untraded interdependenciesand its relationship to economic developmentand especially, to organizational andtechnological learning and competition.

2 Untraded interdependencies, whetherterritorially concentrated or not, are not static.As such, we may expect that their territorialitycan change, but it is unlikely that thisterritoriality can be read off from input-outputrelations. Again, we know very little about suchgeographical dynamics.

3 The geography of an industry is not deterrrrinedby either its input-output relations or itsuntraded interdependencies. I am not speakinghere of political forces and all that, whichobviously do affect economic geography inimportant ways. Perhaps there are degrees offreedom of these spheres. Schwartz and Romo,recently have proposed that the Americanautomobile industry pursued a logic of takingadvantage of the possibility of geographicallyextending its input-output relations - due to thetechnological stabilization of the mass

_ production paradigm - and so dispersed much of’

its production throughout North America andthe world (Schwartz and Romo 1993). But in sodoing, managers may have weakened some of thecrucial untraded interdependencies - whatSchwartz and Romo call the ’regional production

cultures - which would have been critical to asuccessful response by Detroit to the Japanese



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challenge and to the exhaustion of their ownmass production model’s productivity gains. Thissuggests that we need to know much more aboutwhen territorialized untraded interdependenciesconstitute real constraints on geographicalbehaviour, and when they are necessary toinnovative behaviour but do not constrainlocational behaviour. In the latter case, thefailure to ’respect’ such interdependencies couldlead to the situation theorized by Schwartz andRomo (1993) for the North American carindustry: loss of innovative capacity.

4 Untraded interdependencies, especially in theform of conventions, not only potentiatecollective action, adjustment and learning, butmay impede it. Neo-institutionalist scholars callthis the problem of institutional ’sclerosis’(North 1981). Much more needs to be knownabout the kinds of conventions which constructefficient and dynamic ’real worlds of production’and those which favour technological orinstitutional lock-in (Lorenz 1991).

Conclusion

Implications for theoryThe purpose of this exercise has been to identify,in theoretical terms, why regions keep emerging ascentres for new rounds of growth even as ourcapacities for transcending the frictions of spacecontinue to improve. The logic identified here isintended to apply to the recent re-emergence ofregional economies as centres of technological andeconomic spaces, in spite of the largely unequivocalhistorical trend to transcend the limitations of rawdistance in the transport and communication of

goods, people, capital, and information. We havemade a proposition that the region has a centraltheoretical status in the process of capitalistdevelopment which must be located in its untradedinterdependencies.The assertion that the central theoretical status

of regions in capitalist developments is as a locus ofuntraded interdependencies means, simply, thatthese interdependencies are necessary to capitalistdevelopment and that they are, under certain

conditions, necessarily regionalized. But this doesnot mean that, on the ground, there are not otherreasons for regional economics to exist or to grow;politics, for example, may decide which regionsgrow. Established regions, especially those of acertain size, have strong auto-reproducingkeynesian dynamics which have little to do with thelogic elaborated here, for example. And thedynamics of a global division of labour and thenational or global shifting of productive activtycontinue, and require analytical tools other thanthose outlined in this paper. Thus, the propositionmade here is not intended to stand in for a

complete theory of regional development. But theseother reasons, however empirically and politicallyinteresting, do not tell us whether there is anecessary role for regions in the economic processin capitalism.

Having stated that the theoretical status of theregion in capitalism is as a nexus of untradedinterdependencies, we can now recognize that ourclaim is something of a banality: in some respects,it might be seen as not so different from whatpractitioners of the histoire-géographie tradition onthe Continent, or of regional geography in theUSA, wanted to identify. But they were incapableof getting out of the trap of regional uniqueness (of’idiographic’ analysis, as it was then called); lackingan analyical, scientific language for what theyrecounted, they could neither compare norgeneralize, and hence could not contribute (at leastin the eyes of other social scientists) anything to thegeneral body of emerging social scientific theory.The purpose of developing an analytical languagefor the region is precisely to re-state one centralissue implicit in those schools in a way which mightnow be able to contribute something essential to ageneral understanding of the economic processesunder capitalism, that is its developmental dynamicbased in learning.The task of researching untraded

interdependencies as the basis of the ongoingresurgence of regional economies, patterns ofregional growth, regional differentiation indevelopment, trade, and technology accumulation,is an enormous and exciting multidisciplinaryproject. It actually is not a strictly regionalists’project either, for everything that we hare saidabout untraded interdependencies applies more



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generally to the mysteries of a learning economy’,and to the mysteries of why some economies do notdevelop.

Policy implications, with special reference toEuropeA ’Europe of Regions’. So goes the slogan. But thepractice is really quite different. For regions inEurope are recipients of assistance from thestructural funds, but they are not real protagonists inthe process of development. How can we claimthis, given that the Twelve and their regions arefree to propose uses of the funds and to administertheir application? Our analysis has principallyconcerned the ’strong, dynamic’ regions; but it canbe used to shed light on the policies used to favourless developed regions, such as those targeted bythe structural funds of the European Union.The basic philosophy of the funds administered

by the EU is the reduction of inter-regionalinequality in Europe, measured by all thetraditional indicators. The regions are free topropose use of the funds towards this end, as longas the uses conform to one general principle: thatthey take the form of provsion of general purposepublicgoods, which in practice mostly meansinfrastructure. This is, of course, an entirelytraditional approach to development policy: goodswhich are generic and likely not to be supplied insufficient quantity by the market (subject to ’marketfailure’) can be supplied by the public sector. Theyare the only sorts of public goods accepted byorthodox theory because it claims that anything elsewould be equivalent to biasing outcomes by pickingspecific ’winners’ in advance, whether this beparticular firms, technologies, or any other mind ofspecific asset.

Putting a regional gloss on this policy does notchange its fundamental logic. It is a logic which, forexample, has been practiced under the rubric of’endogenous growth theory’ in one of the richerEuropean countries, France, for more than adecade, with results that are far from brilliant. TheItalian experience in the Mezzogiomo, with roads,airports, water systems, schools and bridges isanother example of the limitations of this logic and

indeed any sort of development strategy whichrelics principally on transfer of funds. Generalpurpose public goods may be necessary to thedevelopment process, but they are very far frombeing sufficient to assure development.Our analysis also calls for policy to produce

public goods where markets are likely to fail or tobe slower than desired, but allows that they may bespecific to technological-economic spaces; it is thedevelopmental properties of these spaces (evolutionthrough learning, spillovers, andcomplementarities) that ultimately generalize theirbenefits, and make it possible for such generaleffects to widen over time, in an open-endedfashion. Such specific public goods include suchtraditional objects of policy as labour skills andtraining, technologies, and industry- or region-specific assistance to firms, but the most importantof such public goods are entirely absent fromdiscussions of economic policy: the conventionswhich make possible certain capacities for collectiveaction and co-ordination which we discussed above.

This may sound absurd as a possible category ofpublic good and object of policy, but there are clearlessons from history that the absence of suchcollective order and co-ordination makes virtuallyall other forms of policy highly prone to failure.The Italian example is the clearest in Europe. In1970, Italy established much more autonomousregional governments. They were endowed with awide range of powers to promote economic

development, though not with direct power in thematter of industrial policy. Over the same period,however, the cassa per il me::.::.ogionlO was quiteactivc in installing all kinds of public goods in thesouthern regions. And then along came Europe,with its massive infusion of additional funds. Therehas never been a more ideal testing ground for thepossibility of promoting regional development:national and international funding and institutionaldecentralization, within a wealthy country whereother regions had witnessed impressive,internationally competitive economic growth in thesame period. The fate of the regional governmentsin the south, established at exactly the same time asthose elsewhere in the country and with exactly thesame powers, is indicative of the problem. Putnamel al. (1993) studied these governments over atwenty year period, showing that the regional



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governments in the south have performed poorly intheir mission, while those in the north haveperformed well. Why? Because the absence of whathe calls a ‘cive culture’, and what we may label aset of vrtuous connections of economic co-

ordination, those which mobilize capacities forefficient economic action, makes almost any effortat creating formal institutions or of applyinginvestments, doomed to failure. Mistrust, fear, theretreat to particularistic social groupings such asnatural family or mafia family, and so on, impedethe formation of such conventions, no matter howhigh the investment level or how wide theinstitutional powers. Without needing to invoke theproblem of mafia which is specific to the Italiancase, we can easily see analogous phenomena inwhat goes on in other underdeveloped regions inthe European Union. The application of generalpurpose public goods favoured by EU policy, whileperhaps necessary, has little chance of success inthese contexts, because the political and economicconventions of action - the untraded

interdependencies - are the wrong ones in thesecontexts.

The French example is also repealing. Theapplication of endogenous growth theory by theSocialist government throughout the 1980semphasized raising the quality of factors ofproduction throughout the country (education,roads, telecommunications etc.); moreover, andunlike the Italian case, this policy was executed bya strong central state staffed by extremelycompetent people (ertarques, polytechniciens,engineers of the ponts et dwussées, etc.). The PS(Socialist Party) combined this with a so-called’decentralization’ in the form of the Auroux Lawsof 1982. But, for the most part, the ages-oldpattern of ’Paris and the French desert’ has

repeated itself. The problem is not as dramatic asin the Mezzogiorno, economically or sociologically;it is analogous, however, in that the regions andlocalities of France which are excluded from the

development process have suffered so long fromdeprivation of their own autonomous capacities foraction that a mere law on decentralization will notsuffice to build anything resembling collectivecapacities for advanced economic development.Indeed, in some ways the decentralization lawssimply reinforced the power of local notables and

allowed them to broker the locality’s interests vis-d-vis Paris the way the pr6fet had always done, thusavoiding the central problem of constructing viablerules for collective action, suitable to the creationand development of advanced products andprocesses (Ganne 1992). There is little in theMaastricht Treaty that addresses such difficulties.These problems are not unknown in the

literature, though they are principally discussed at anational level, under the guise of ’institutionalborrowing’. For the most part, nowadays thismeans observing Japanese firm organization andtechnology policy, and German labour-market andbanking institutions and suggesting similarinstitutions elsewhere. For regionalists, thefavourite places to recommend copying are certainsouthern German /äl1der or certain regione of theThird Italy. Orthodox notions of institutionalborrowing are to be regarded with suspicion,however, to the extent that they reduce the problemof establishing appropriate frameworks forcollective action to the mere imposition of newformal rules or incentive structures for existingones. The Italian and French examples cited abovesuggest this, although at the level of regionalgovernment generally and not specifically at thelevel of production-system institutions. But there isno reason to be more optimistic about borrowinginstitutions at production-system level if this meanslaying down institutions as if they were merecreatures of the law. lVhen a German workerenters an apprenticeship program - somethingwhich is formal and rule-bound - she or he not

only receives an incentive from the State/landerand industry to learn, through the provision oftraining, but also enters into a wider culture ofprecision manufacturing work, where she or he canexpect to have a job upon completion and then toenter into a lifetime of work where she or he willbe recognized as a skilled worker and will beretrained as necessary so that this identity will bereproduced. This is essentially different from anynotion of mere vocational training, where theidentity - the key set of conventions by which askilled worker is accorded a certain status in the

eyes of others and which defines his or her

capacities for action as well as his or her right torecognition - is missing (Marsden 1986; Mauriceet at. 198fi).



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It is, then, not sufficient merely to borrowinstitutions; attempts to construct institutions mustbe based on helping people to reconstruct whatthey want to do by helping them to change howthey expect to be recognized and identified fordoing it. This is a problem of conventions-as-untraded interdependencies. They are the sorts ofspecific public goods that are required to make theeffects of hard regional investments likely to pay offin terms of a viable developmental trajectory.

Specific public goods must be situated in theexisting and possible context of action of the actorswho are going to make up production systems. 20They must seek to build capacities for action,which are much more than skills: they are mutuallycoherent set of expectations, built into conventions,which underlie technological-economic spaces,permitting the actors involved to develop and co-ordinate necessary resources. The problem isevidently of an extraordinary complexity andcompletely outside the scope of analysis of mosteconomics and most policy oriented thinking,though it has emerged as one of the concerns ofthe New Institutional Analysis. 21A Europe of the regions with any hope of doing .

something serious about regional inequalitieswould have to hitch this kind of analysis to oneabout:

1 technological-organizational branching points inindustry - the points at which technological andorganizational spaces are amenable toredefinition, as their assets become re-generalized, and therefore where existingexternal economies and nexuses of untraded

interdependencies lose some of their grip; and2 economically-possible transition pathways for

regions, from ’simpler’ roles in the division oflabour to more complex ones and how to buildthe action capacities, the untradedinterdependencies, that accompany such atransition.

This is a monstrously complex task. How ever, solong as we shrink from defining it in its fullcomplexity and continue to feed policymakers on adiet of simplistic notions (mostly from neoclassicaleconomics, but left-wing economics is alsoresponsible insofar as it concentrates only on hard

production systems analysis) - such as keynesianfeedbacks, input-output linkages, skills, training, oreven the currently-fashionable ’institution building’- we v~iI6 make little progress. Untraded

interdependencies is an extremely complexconcept, as are those of technological andorganizational trajectories, and other concepts fromdynamic economics, but they are necessaryconceptual foundations for any regional (and forthat matter, national) development policy today.

AcknowledgementsThis paper was prepared while the author was avisiting scholar at the Institut de Recherches sur lesSoci6t6s Contcmporaines (IRESCO}, within two ofits research units, the Centre de SociologieUrbaine and the Groupement de Recherches’Institutions, Emploi et Politique Economique’,supported the PIR-Villes Program of the FrenchCNRS. I wish to thank, in particular, FrancisGodard, Edmond Preteceille, Robert Salais, andChristian Topalov for their sponsorship of thisvsit.

Paper presented at the Conference, ’Cities,Enterprises and Society at the Eve of the XXIstCentury’, Lille, 16-18 March 1994, sponsored byPIR-VILLES, CNRS. Earlier versions of thispaper were presented at the international Seminaron ’Geographies of Integration, Geographies ofInequality in Post-Maastricht Europe’, Syros,Greece, 1-4 September 1993; and to the NordicCritical Geographers, Copenhagen, 23-24September 1993.

Notes

1 I first became aware of this term in the work of Dosiand that of Lundvall, though there are echoes of it inthe writings of François Perroux and Tibor Scitovskyin the 1950s.

2 As pointed out in Brusco and Pezzini (1990): 20-35.See, in any case, what many Italian unions actuallyinvolved in the districts think about them, in, forexample, Brutti 1990.3 The point that the districts draw some of their ’civic

capital’ from deep historical roots and traditions, but



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that they are not simple continuations of industrialhistory there, having reinvented themselves severaltimes since the Second World War is found in virtuallyall the work of the Florentine School, such as Becattini(1978); Dei Ottati (1987); and for the Emilian cases,Cappechi (1990a) and (1990b); Dei Ottati (1990) and(1991). For a literature review, see De Maria andScarpitti (1992), and for a clear theoretical argumentabut civic capital, see Putnam el al. (1993).

4 Sabel et al. (1989), but also suggested by Best (1990);Aoki (1988); and much of the business economicsliterature, which is more attentive to change in thebusiness environment for both small and big firms;implying that size is not the principal axis of theanalysis. See, for example, Hakansson (1989).

5 Even proponents of the thesis of a revival of certain

principles of mass production, in the context of ’leanproduction’, readily admit this as a lesson of recentindustrial history; see, for example, Coriat (1991), ormuch of the neo-evolutionist work coming out of theRegulationist School; the best statements, in myopinion, are: Dosi (1987) and Dosi and Orsenigo(1985).6 Contrary cases include Scott (1988b) or Scott andAngel (1987). See also Storper and Salais (1992).

7 See, for example, the critique of labour marketsegmentation associated with flexible production inChristopherson and Storper (1989). These critiqueswere hardly unique to our school, of course; they wereechoed widely in the European industrial relationsliterature (see much of the work from the industrialrelations laboratory in Aix-en-Provence such asMaurice et al. (1986)).

For an analysis of how lack of politically progressivefeatures and competitive weakness are connected, seeScott and Storper (1992).8 This point about dominance, or what we called’ensembles of dominant industries’, was advanced firstin Storper and Scott (1986): 1-15; we elaborated it inScott and Storper (1987) and in a number of otherpieces that followed.9 Both quotes are from an excellent paper by Perrin

(1993). My translations attempt to get the sense of themessage. They read, in the original, a bit differently:

Un territoire, ce n’est pas un espace délimité deressources. C’est le mode d’établissement d’un

groupe, dans l’environnement naturel, qui, dansl’organisation des localisations des activités, instaureet faire prévaloir les conditions de lacommunication-language et de l’apprentissagecollectif (des coopérations créatrices de rationalitéstechniques et organisationnelles).Le milieu apparat comme la formation socio-

economique qui, à la fois, genère la dynamique etqui se constitue en la mettant en oeuvre. End’autres termes, les milieux prennent corps ens’auto-organisant et ils y parviennent d’autant mieuxqu’ils se territorialisent. L’émergence de ladynamique organisationnelle a été correlative decelle des milieux locaux.

For another sophisticated treatment, see: Dupuy andGilly (eds) (1992)

10I am not sure who was the first to make this point, butit is now stock-in-trade of many evolutionaryeconomists and business economists, such as Porter(1990).

11 As noted in Porter (1990); Amendola el al.; Patel andPavitt (1992); and Storper (1992).12 This is now well incorporated into recent work within

the evolutionary paradigm, as for example in Lundvall(1992).

13 From the French school of économie des conventions.References include: Eymard-Duvemay (1987);Thevenot (1986): 19.5-217. Revue Economique (1989);Salais and Storper (1992) and Salais and Storper(1993). This is by no means a complete list: apologiesto those who are left off:

14 A detailed account of these worlds in found in Salaisand Storper (1993); and a brief account in Salais andStorper (1992). This is a theoretically different way ofaccounting for the observed diversity of pathways ofindustrial adjustment. See, for a more traditionalinstitutionalist approach, Tolliday and Zeitlin, (1988).

15 I owe what follows with respect to general and specificassets to discussion with two doctoral students, SteveBass and Ahmed Enany. Bass, notably produced anunpublished seminar paper employing this framework.Steve Bass (1993). But for a very incisive discussion,see Gaffard (1990). The concept of specificity isbrought out beautifully in Asanuma (1991).

This notion of agglomerations as action systemswhere particular kinds of agglomeration-specificrationalities are produced and constitute secrets ofhow the production system works is to be found in anincreasing number of reflections on the subject, albeitfrom diflerent theoretical standpoints. See: Lecoq(1993); Amin and Thrift (1993).

16 Note that this is exactly opposite to much of whatWilliamson says about assets, where specificity is afunction of the numbers of owners/deployers of assetsand hence, their reproducibility. An older industrythus has non-specific assets, frequently, because theyare widely diffused and be purchased from largenumbers of suppliers. The purchaser cannot be heldhostage. In an evolutionary sense, however, one couldcall these assets specific in the sense of dedicated to



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the purposes of the consuming industry, the result ofspecialization of such assets to these purposes, choiceswhich are now irreversible. Williamson (1985). In anycase, this reveals the fundamental ambiguity of thisterminology.

17 Scott and I made a similar argument in 1987, but didnot distinguish between input-output inducedbehaviour and the untraded interdependencies I amemphasizing here.

18 Scott and I have also argued that the ongoing processof product differentiation in capitalism destandardizesoutputs (and hence inputs); this means that new inputsare necessary. The uncertainty attached to these newinput-output relationships re-creates the need forproximity in input-output transactions. We used therecent growth of financial services agglomerations asan example, that is an industry where transport costsfor the ’product’ are practically zero.

19 I take up this demand architecture and its territorialityin Storper (1995, forthcoming); for a slightly differenttreatment, see Planque (1990). See also: Gerter(1993); and Todtling (1992).

20 In Salais and Storper (1993), we build the notion ofsitualed policies and situated states. See also Millon-Delsol (1992); and McIntyre (1988).

21 The NIA refers to a diverse group of politicalscientists and political economists who havereinvigorated the study of institutions. See North(1981); Moe (1987); Olson (1971) ; Aft and Schepsle(eds) (1990); Putnam (1993) and many other works,both within the ’positive’ tradition and contesting it.

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European Urban and Regional Studies 1995 Storper 191 221

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Transcript of European Urban and Regional Studies 1995 Storper 191 221