Deconstructing Clusters:

Chaotic Concept or Policy Panacea?

Ron Martin
Department of Geography
University of Cambridge, UK
E-mail: rlm1@cam.ac.uk
and
Peter Sunley
Department of Geography
University of Edinburgh, UK
E-mail: pjs@geo.ed.ac.uk

December 2001
Revised Version of a Paper Presented at the Regional Studies Association
Conference on
Regionalising the Knowledge Economy
London, 21 November

Submitted to Journal of Economic Geography

1
Abstract
Over the past decade, there has been growing interest in local industrial
agglomeration and specialisation, not only by economic geographers but
also by economists and by policy-makers. Of the many ideas and concepts
to have emerged from this new-found focus, Michael Porter’s work on
‘clusters’ has proved by far the most influential. His ‘cluster theory’ has
become the standard concept in the field, and policy-makers the world
over have seized upon Porter’s cluster model as a tool for promoting
national, regional and local competitiveness, innovation and growth. But
the mere popularity of a construct is by no means a guarantee of its
profundity. Seductive though the cluster concept is, there is much about it
that is problematic, and the rush to employ ‘cluster ideas’ has run ahead of
many fundamental conceptual, theoretical and empirical questions. Our
aim is to deconstruct the cluster concept in order to reveal and highlight
these issues. Our concerns relate to the definition of the cluster concept, its
theorisation, its empirics, the claims made for its benefits and advantages,
and its use in policy-making. Whilst we do not wish to debunk the cluster
idea outright, we do argue for a much more cautious and circumspect use
of the notion, especially within a policy context: the cluster concept should
carry a public policy health warning.

Key words: Business location Clusters Porter Chaotic concept

Cluster empirics Cluster theory Cluster Policy The cluster ‘brand’

2
 “When I use a word”, Humpty Dumpty said in a rather
scornful tone, “it means just what I choose it to mean -
neither more nor less” (Lewis Carroll, Through the Looking
Glass, 1872).

“For an idea ever to be fashionable is ominous, since it

must afterwards be always old-fashioned” (George
Santayana, Winds of Doctrine, 1913).

1. Introduction: Clusters and the Reassertion of Location

In recent years there has been a growing interest in the role of
location in the global economy. Some have argued that globalisation –
especially the creation of borderless markets, the hypermobility of finance,
the rise of transnational firms, and the transition to an information
economy – signals the ‘end of geography’ (O’Brien, 1992), the ‘death of
distance’ (Cairncross, 1997), and the ‘delocalisation’ of economic and
social relationships (Gray, 1998). The central claim is that globalisation is
rendering the significance of location for economic activity increasingly
irrelevant. Others, however, espouse the opposite view, that, to the
contrary, globalisation is actually increasing rather than reducing the
importance of location, that it is promoting greater regional economic
distinctiveness, and that regional economies rather than national
economies are now the salient foci of wealth creation and world trade
(Ohmae, 1995; Coyle, 1997, 2001; Krugman, 1997; Porter, 1998; Scott, 1998,
2001; Fujita, Krugman and Venables, 2000). Thus, as the business
economist Michael Porter (1998a, p.5) puts it:

In a global economy – which boasts rapid transportation,

high speed communications and accessible markets – one
would expect location to diminish in importance. But the
opposite is true. The enduring competitive advantages in
a global economy are often heavily localised, arising from
concentrations of highly specialised skills and knowledge,
institutions, rivalry, related businesses, and sophisticated
customers (Porter, 1998, p.90).

At the same time, it is alleged, increasing global economic integration

itself leads to heightened regional and local specialisation, as falling

3
transport costs and trade barriers allow firms to agglomerate with other
similar firms in order to benefit from local external economies of scale
(Krugman, 1991, Fujita, Krugman, Venables, 2000). Agglomeration may
allow firms to benefit from various forms of market and nonmarket
spillovers which in their turn are thought to raise local endogenous
innovation and productivity growth (see Martin and Sunley, 1998). For
these and other related reasons, it has become fashionable within certain
academic and policy circles to talk of the ‘re-emergence of regional
economies’ (Sabel, 1994), the ‘localization of the world economy’
(Krugman, 1997) and the rise of a ‘global mosaic of regional economies’
(Scott, 1998).
One of the most influential – indeed, the most influential - exponent
of this emphasis on economic localisation is Michael Porter, whose notion
of industrial or business clusters has rapidly become the standard concept in
the field. Moreover, Porter has not only promoted the idea of ‘clusters’ as
an analytical concept, but also as a key policy tool. Policy-makers all over
the globe, from the OECD and the World Bank, to national governments
(such as the UK, France, Germany, the Netherlands, Portugal, and New
Zealand), to regional development agencies (such as the new Regional
Development Agencies in the UK), to local and city governments
(including various US states), have become eager to promote local
business clusters. Nor has this policy interest been confined to the
advanced economies: cluster policies are also being adopted
enthusiastically in an expanding array of developing countries (see
Doeringer and Terka, 1996; World Bank, 2000). As the celebrated architect
and promoter of the idea, Porter himself has been consulted by policy
makers the world over to help them identify their nation’s or region’s key
business clusters or to receive his advice on how to promote them.
Clusters, it seems, have become a world-wide fad, a sort of academic and
policy fashion item.
The more so because the concept has become increasingly associated
with the so-called ‘knowledge economy’, or what some have labelled the

4
‘New Economy’. A key argument here is that the processes driving the
new ‘knowledge-based economy’ - technological know-how, innovation
and information creation - appear to be most favourable precisely when
such development is localised. Norton (2000), for example, argues that the
global leadership of the US in the New Economy derives precisely from
the growth there of a number of large, dynamic clusters of (venture capital
backed) innovative entrepreneurialism. In the US, Porter is himself
leading a major policy-driven research programme to “develop a
definitive framework to evaluate cluster development and innovative
performance at the regional level” in order to identify the ‘best practices’
that can then be used “to foster clusters of innovation in regions across the
country” (Porter and Ackerman, 2001; Porter and van Opstal, 2001).
Likewise, the OECD (1999, 2001) sees innovative clusters as the drivers of
national economic growth, and as a key policy tool for boosting national
competitiveness.
But the mere popularity of a construct is by no means a guarantee of
its profundity. Our argument here is that, seductive though the concept is,
there is much about it that is problematic, and that the rush to employ
‘cluster ideas’ has run ahead of many fundamental conceptual, theoretical
and empirical questions (Held, 1996; Steiner, 1998). The aim is to
deconstruct the cluster concept in order to reveal and point up these
issues. Our concerns relate to the definition of the cluster concept, its
theorisation, its empirics, the claims made for its benefits and advantages,
and its use in policy-making. Whilst we do not wish to debunk the cluster
idea outright, we do argue for a much more cautious and circumspect use
of the notion, especially within a policy context. We begin by asking why
it is that ‘clusters’ have gate-crashed the economic policy arena when the
work of economic geographers on industrial localization, spatial
agglomeration of economic activity and the growing salience of regions in
the global economy, has been all but ignored.

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2. Why ‘Clusters’?
As Porter admits, the idea of specialised industrial localisation is
hardly new. As is well-known, Alfred Marshall, writing at the end of the
nineteenth century, included a chapter in his Principles of Economics (1890)
on ‘the concentration of specialised industries in particular localities’. His
characterisation of these local concentrations of specialised activity was
cast in terms of a simple triad of external economies: the ready availability
of skilled labour, the growth of supporting and ancillary trades, and the
specialisation of different firms in different stages and branches of
production (see Figure 1). Marshall argued that once the process of local
specialised industrial concentration had got under way, it becomes
cumulative and socialised in the locality: “The mysteries of the trade
become no mysteries; but are as it were in the air” (Marshall, 1890, p. 271).
Marshall saw these localised concentrations of economic specialisation –
or ‘industrial districts’ as he termed them – as an integral feature of
industrial organisation. However, he had little to say about how the
process of industrial localisation actually starts, why it starts in certain
places and not others, or exactly what was meant by ‘local’. Further, his
interpretation of the formation and evolution of industrial districts was
coloured by a questionable theory of the general direction of economic
growth and development (namely his view that just as organisms evolve
towards greater complexity, industries progress towards greater local
specialisation and differentiation - see Sunley, 1992).
A century later and Porter’s neo-Marshallian cluster concept has
burst on the scene. In his comparative work on international
competitiveness, Porter (1990) argued that a nation’s leading export firms
are not isolated success stories but belong to successful groups of rivals
within related industries. He termed these groups ‘clusters’, sets of
industries related by horizontal and vertical links of various kinds
(including, but not confined to, input-output trading linkages). Indeed,
according to Porter, the significance of these industrial clusters resides in

6
 Figure 1

Marshall’s Triad of External Economies of Industrial Localisation

(Based on Marshall, 1890, Book Four, Ch. X)

Local Pool of
Specialised Labour
Accumulated skills
Local Market for special
workers

‘Local Industrial
Atmosphere’
Localised knowledge
accumulation
Creation of new ideas
and business methods

Local Supporting and Local Inter-firm Division

Ancillary Trades of Labour
Supply of inputs Specialisation in different
Organisation of trade branches of production
Use of specialised machinery

the interactions between four sets of factors that constitute a ‘competitive

diamond’: firm strategy, structure and rivalry; factor input conditions;
demand conditions; and related and supporting industries. The more
developed and intense the interactions between these four sets of factors,
the greater will be the productivity of the firms concerned.
Porter then argued, and this has since become his key theme, that the
intensity of interaction within the ‘competitive diamond’ is enhanced if
the firms in the cluster are also ‘geographically localised’. According to
Porter, the geographic concentration of firms in the same industry is
“strikingly common around the world” (1990, p. 120). More specifically,
he suggests that a nation’s most globally competitive industries are also
likely to be ‘geographically clustered’ within that nation. Hence, what
originally started out as a way of decomposing a national economy, the
cluster as a group of interlinked industries and associated activities, has
become a spatial metaphor, the cluster as a geographically localised grouping

7
 Figure 2

Porter’s Competitive Diamond of Local Industrial Clustering

(Based on Porter, 1998, Ch 10).

Firm Strategy and Rivalry

Vigorous competition among
locally-based rivals

Factor Input Conditions Local Context Demand Conditions

Local labour, capital and natural Local environment Sophisticated and
resources; that encourages demanding local customers
physical, administrative, appropriate forms Specialised local demand
information and technological of investment and Customer needs that anticipate
infrastructures; sustained those elsewhere
specialised inputs upgrading

Related and Supporting

Industries
Presence of capable locally-
based suppliers and competitive
related industries

of interlinked businesses. The competitive diamond is the driving force

making for cluster development, and simultaneously the cluster is the
spatial manifestation of the competitive diamond (Figure 2). The systemic
nature of the diamond produces local concentration of the leading rival
firms, which in its turn magnifies and intensifies the interactions between
the factors. Hence, according to Porter (1990, p. 157), “The process of
clustering, and the intense interchange among industries in the cluster,
also works best where the industries involved are geographically
concentrated”(emphasis added). There is then a close affinity between
Porter’s schematic ‘competitive diamond’ of local business clustering and
Marshall’s ‘triad’ of external economies of industrial localisation.

8
 But Porter’s cluster notion is not the only rediscovery and
reinvention of Marshall’s ideas to have taken place in recent years. For the
past two decades or more, economic geographers have devoted
considerable effort to studying local industrial specialisation, spatial
economic agglomeration and regional development, and to identifying the
economic, social and institutional processes involved. They too have
invented a whole series of neologisms to capture and represent the spatial
form and nature of local business concentrations, including: ‘industrial
districts’, ‘new industrial spaces’, ‘territorial production complexes’, ‘neo-
Marshallian nodes’, ‘regional innovation milieux’, ‘network regions’, and
‘learning regions’ (see for example, Scott, 1988; 1998; Amin and Thrift,
1992; Harrison, 1992; Harrison, Kelly and Grant, 1996; Markusen, 1998;
Asheim, 2000). Not only is this corpus of work by economic geographers
largely ignored by Porter (and by other economists who have recently
discovered geography, such as Paul Krugman), in total contrast to his
cluster concept their ideas have singularly failed to have any impact on
policy-makers. Why then has his work proved so fashionable and
influential while that of economic geographers has not? Why have some
economic geographers themselves started to use cluster terminology in
preference to their own (for example, Pinch and Henry, 1999; May et al,
2001; Scott, 2001; Keeble and Wilkinson, 2000; Keeble and Nachum, 2002)?
One possible reason is that, from the beginning, Porter has rooted
and promoted his cluster concept within an overarching focus on the
determinants of ‘competitiveness’ (of firms, industries, nations, and now
locations). This resonates closely with what has become a major issue in
economics and a key objective amongst policy-makers: namely, the
importance of competitiveness for succeeding in today’s global economy.
Porter’s avowed aim is to inform companies, cities, regions and nations
how to compete on the world stage, and the undoubted lure of his cluster
concept is that it sits well with the current preoccupation with micro-
economic supply-side intervention, and especially with the policy
imperatives of raising productivity and innovation (Porter, 1996; 1998b,c;

9
2000a, b, c). As an alleged key determinant of competitiveness, Porter’s
clusters have inevitably attracted considerable interest, particularly given
the emphasis he is currently assigning to geographical industrial clusters
in promoting the competitive advantage of the US economy (Porter and
Opstal, 2001). Economic geographers’ work on industrial localisation and
regional agglomeration, on the other hand, has tended to be more diffuse
in its aims, and much less concerned with core issues such as the
performance, productivity and competitiveness of firms.
A second, and related, reason could be the way in which Porter has
conveyed his ideas on clusters. His discussion is framed in terms of the
economics of ‘business strategy’ (a long-standing core theme in his work
on competition), and not in terms of the sorts of more general theoretical
debates and concepts - such as ‘post-Fordism’, ‘flexible specialisation’,
‘modes of regulation’, and so on - found in economic geography. The
latter do not chime easily with, or translate readily into, practical business
and policy strategy. In contrast, Porter’s explicit goal “is to develop both
rigorous and useful frameworks for understanding competition that
effectively bridge the gap between theory and practice” (1998a, p.2).
Cluster theory, he argues, is “not only a tool for managers, but also a
microeconomic – based approach to economic development for
governments that is closely tied to actual competition” (op cit, p. 7). At the
same time, in line with this goal, his easy ‘business- and policy-friendly’
writing style, at once both accessible and common-sense, is undeniably
seductive, and is quite different from the more ‘academic’ discursive
approach that characterises much economic geography writing in this
field. At the same time, there can be little doubt that the popularity of
Porter’s cluster concept, compared to economic geographers’ work on
similar notions, derives in large part from his celebrated international
standing as a leading writer on business strategy. This reputation,
combined with his self-confident, authoritative and proselytising style,
lends his cluster concept an apparent authenticity and legitimacy that
policy-makers have found difficult to resist. In contrast, economic

10
geographers have had much less influence on business policy: indeed the
shaping of public policy has, unfortunately, taken something of a back
seat in the discipline’s research agenda (Markusen, 1998; Martin, 2001;
Glasmeier, 2000).
But a third, and equally important reason for its rapturous
reception is the very nature of the ‘cluster concept’ itself. Porter’s cluster
metaphor is highly generic in character, being deliberately vague and
sufficiently indeterminate as to admit a very wide spectrum of industrial
groupings and specialisations (from footwear clusters to wine clusters to
biotechnology clusters), demand-supply linkages, factor conditions,
institutional set-ups, and so on, while at the same time claiming to be
based on what are argued to be fundamental processes of business
strategy, industrial organisation and economic interaction. Rather than
being a model or theory to be rigorously tested and evaluated, the cluster
idea has instead become accepted largely on faith as a valid and
meaningful ‘way of thinking’ about the national economy, as a template or
procedure with which to decompose the economy into distinct industrial-
geographic groupings for the purposes of understanding and promoting
competitiveness and innovation. The very definitional incompleteness of
the cluster concept has been an important reason for its popularity (Perry,
1999). In the words of one analyst, clusters have “the discreet charm of
obscure objects of desire” (Steiner, 1998, p. 1). However, although the
definitional and conceptual elasticity of the cluster concept can be seen as
a positive strength, in that it permits a wide range of cases and
interpretations to be included, we consider it to be problematic. The
concept has acquired such a variety of uses, connotations and meanings
that it has, in many respects, become a ‘chaotic concept’, in the sense of
conflating and equating quite different types, processes and spatial scales
of economic localisation under a single, all-embracing universalistic
notion.

11
3. A Chaotic Concept?
The multidimensionality and vague character of the concept pose
problems of theoretical and empirical definition, as well as methodological
investigation. Not only are clusters vague in geographical scale and
internal economic dynamics, so that they are hard to identify with
precision, different analysts use the idea in different ways to suit their
own purposes (see, for example, the multiplicity of interpretations used in
the World Congress on Local Clusters, DATAR-OECD, 2001). There are
several main axes of confusion.
A major source of ambiguity is that of definition. The dramatist Alan
Bennett tells the story of how his aged mother once looked at sheep and
said “I know what they are, but I don’t know what they’re called”(Bennett
1994, p. 127). The situation in the cluster literature seems to be the reverse:
we know what they’re called, but defining precisely what they are is much
more difficult. In his own work, Porter has defined clusters as:

Geographic concentrations of interconnected companies,

specialised suppliers, service providers, firms in related
industries, and associated institutions (for example,
universities, standards agencies, and trade associations) in
particular fields that compete but also co-operate (Porter,
1998, p. 197).
Thus, there are two core elements in Porter’s definition. First, the firms in
a cluster must be linked in some way. Clusters are constituted by
interconnected companies and associated institutions linked by
commonalities and complementarities. The links are both vertical (buying
and selling chains), and horizontal (complementary products and services,
the use of similar specialised inputs, technologies or institutions, and other
linkages). Moreover, most of these linkages, he argues, involve social
relationships or networks that produce benefits for the firms involved.
Hence,

A cluster is a form of network that occurs within a

geographic location, in which the proximity of firms and
institutions ensures certain forms of commonality and
increases the frequency and impact of interactions (1998a,
p.226).

12
The second fundamental characteristic, therefore, is that clusters are
geographically proximate groups of interlinked companies. Co-location
encourages the formation of, and enhances the value-creating benefits
arising from, networks of interaction between firms.
The obvious problem raised by these cluster definitions is the lack
of clear boundaries, both industrial and geographical. At what level of
industrial aggregation should a cluster be defined, and what range of
related or associated industries and activities should be included? How
strong do the linkages between firms have to be? How economically
specialised does a local concentration of firms have to be to constitute a
cluster? There is no explicit reference in Porter’s definitions that clusters
are economically specialised entities in the Marshallian sense, yet all of his
examples are, often very narrowly so. In addition, at what spatial scale,
and over what geographical range, do clustering processes (inter-firm
linkages, knowledge spillovers, rivalry, business and social networks, and
so on) operate? What spatial density of such firms and their interactions
defines a cluster? The difficulty is not just that the boundaries of clusters,
as Porter admits, are ‘continuously evolving’, as new firms and industries
emerge and established ones shrink or decline. More fundamentally, the
definition itself seems intentionally opaque and fuzzy.
Cluster boundaries, according to Porter (1998, p.204), “rarely
conform to standard industrial classification systems, which fail to capture
many important actors in competition as well as linkages across industries
…. Because parts of a cluster often fall within different traditional
industrial or service categories, significant clusters may be obscured or
even go unrecognised”. He refers to the 400-firm medical devices cluster
in Massachusetts, which he says has long remained all but invisible,
buried within larger and overlapping standard industry categories. In
part then, defining the boundaries of clusters appears to be about deriving
a detailed classification of economic activity that more accurately reflects
the range of specialised economic activity. But then a cluster is also about
linkages within and between such specialised activities, about tracing the

13
supply chains supporting what is seen as the ‘core’ activity of the cluster.
So as Porter admits,

Drawing cluster boundaries is often a matter of degree,

and involves a creative process informed by understanding
the most important linkages and complementarities across
industries and institutions to competition (1998a, p. 202;
emphasis added).

He suggests that “the strength of ‘spillovers’, and their importance to

productivity and innovation determine the ultimate boundaries”; that
“cluster boundaries should encompass all firms, industries and
institutions with strong linkages”, whereas ”those with weak and non-
existent linkages can safely be left out” (1998a, p.202). Exactly how the
‘strength’ of different sorts of linkages and spillovers should be measured,
and where the cut off between ‘strong’ and ‘weak’ ties falls, are, however,
issues that are left unspecified. The existence of clusters, appears then, in
part at least, to be in the eye of the beholder – or should we say, creator?
And how does the requirement of ‘geographical proximity’ enter
into the equation? Although throughout his work on clusters Porter
emphasises the critical role of ‘geographical proximity’ in the formation,
performance and identification of clusters, the term is never defined with
any precision. Indeed, it appears to be highly and ridiculously elastic, for
he suggests in fact that clusters can be found at almost any level of spatial
aggregation: “They are present in large and small economies, in rural and
urban areas, and at several geographic levels (for example nations, states,
metropolitan regions, and cities” (1998, p.204); their geographical scope
can even encompass “a network of neighbouring countries” (1998a, p.199).
To make matters worse, “the appropriate definition of a cluster can differ
in different locations, depending on the segments in which the member
companies compete and the strategies they employ” (1998, p. 205). Such
geographical licence has given authors unlimited scope in their definition
and application of the concept (see Table 1). At one extreme, the term has

14
 Table 1. Clusters: The Confusion of Definitions
(Some Examples Drawn from the Cluster Literature)

Porter (1998, p. 199) “A cluster is a geographically proximate group of

interconnected companies and associated institutions in a particular field,
linked by commonalities and complementarities”.

Crouch and Farrell, (2001, p. 163) “The more general concept of ‘cluster’
suggests something looser: a tendency for firms in similar types of business to
locate close together, though without having a particularly important presence
in an area.”

Rosenfeld (1997, p. 4) “A cluster is very simply used to represent

concentrations of firms that are able to produce synergy because of their
geographical proximity and interdependence, even though their scale of
employment may not be pronounced or prominent.”

Feser (1998, p. 26) “Economic clusters are not just related and supporting
industries and institutions, but rather related and supporting institutions that
are more competitive by virtue of their relationships.”

Swann and Prevezer (1996, p. 139) “Clusters are here defined as groups of
firms within one industry based in one geographical area.”

Swann and Prevezer (1998, p. 1) “A cluster means a large group of firms in

related industries at a particular location”.

Simmie and Sennett (1999a, p. 51) “We define an innovative cluster as a large
number of interconnected industrial and/or service companies having a high
degree of collaboration, typically through a supply chain, and operating under
the same market conditions.”

Roelandt and den Hertag (1999, p.9) “Clusters can be characterised as

networks of producers of strongly interdependent firms (including specialised
suppliers) linked each other in a value-adding production chain.”

Van den Berg, Braun and van Winden (2001, p. 187) “The popular term cluster
is most closely related to this local or regional dimension of networks … Most
definitions share the notion of clusters as localised networks of specialised
organisations, whose production processes are closely linked through the
exchange of goods, services and/or knowledge.”

Enright (1996, p. 191) “A regional cluster is an industrial cluster in which

member firms are in close proximity to each other.”

15
been used to refer to national groups of industries and firms that are
strongly linked (in terms of traded interdependencies), but dispersed over
several different locations, but dispersed over several different locations
within a country, with no obvious major geographical concentrations (this
was in fact Porter’s original use of the ‘competitive diamond’). Roelandt
and den Hertog (1999, p. 9) introduce a major OECD collection on clusters
by defining them in this way, as “networks of production of strongly
interdependent firms (including specialised suppliers) linked to each other
in a value-adding chain” with no necessary element of spatial localisation.
At the other extreme, the term is used to refer to a local grouping of
similar firms in related industries within a highly spatially circumscribed
area - such as the media cluster in Lower Manhattan, New York (Porter,
1998, p. 205), or the film and media cluster in Soho, London (Nachum and
Keeble, 1999). In between, Porter refers to ‘regional clusters’, such as the
California agribusiness cluster, and the Massachusetts medical devices
cluster. He lists some 60 of these in the US (Porter, 1998.p.229), although in
most cases the clusters are far from being state-wide. Elsewhere, clusters
and regions are used interchangeably (Baptista and Swann, 1998; Enright
1996). The confusion is further heightened by other studies which equate
clusters and ‘cities’. For example Swann (1998, page 63) suggests that
“London seems to be an evergreen cluster… that through luck or design
happens to have mature industries which attract new industries”. Still
others suggest, more specifically, that the proximity inherent in a cluster
extends up to a ‘range of fifty miles’ (May et al, 2001), but such
demarcations are obviously quite arbitrary.
The problem is that geographical terminology is used in a quite
cavalier manner, depending it seems, as Porter himself admits, on what
the aim of the exercise is, or the client or policy-maker for whom the
analysis is intended. The key weakness is that there is nothing inherent in
the concept itself to indicate its spatial range or limits, or whether and in
what ways different clustering processes operate at different geographical
scales. We are not suggesting that the cluster concept should refer to a

16
particular pre-specified geographical size or scale; but to use the term to
refer to any spatial scale is stretching the concept to the limits of credulity,
and assumes that ‘clustering processes’ are scale-independent. If the same
externalities and networks that typify clusters do indeed operate at a
whole variety of spatial scales, this surely weakens the empirical and
analytical significance of the cluster concept.
This lack of geographical precision and consensus is further
compounded by the vague typologies of cluster types and evolutionary
paths that have been proposed. Porter suggests that clusters “vary in size,
breadth, and state of development” (1998a, p. 204). Some clusters consist
primarily of small and medium sized firms (he cites the Italian footwear
and North Carolina home furniture clusters). Other clusters contain both
small and large firms (he gives the German chemical cluster as an
example). There are university-centred clusters and clusters with no
university connections; clusters of traditional industries and clusters of
high-technology industries. There are nascent clusters, new clusters,
established clusters and declining clusters. Other authors have sought to
construct typologies based on the evolution of clustering processes.
Rosenfeld (1997), for example, distinguishes three types. ‘Working’ or
‘overachieving’ clusters are ‘self-aware’ and produce more than the sum of
their parts. Latent or ‘underachieving’ clusters present opportunities that
have not yet been fully exploited. ‘Potential’ clusters have some of the key
conditions but lack some inputs and critical mass. This latter type is
particularly problematic, since it becomes difficult to exclude almost any
firm from a ‘potential’ cluster, especially when aspirational policy-makers
are eager not to be left out of the cluster promotion game. In reality, there
are probably very few firms that do not have horizontal or vertical links
(co-operative or competitive) of some sort with another loosely-defined
geographically proximate firm. Does this mean that virtually every firm
could be considered part of a ‘potential’ cluster? As Jacobs and de Man
(1996) complain, typologies that employ categories such as embryonic,
latent, and potential come close to incorporating almost all firms in

17
clusters of one type or another, and as such become virtually meaningless.
Equally problematic is the tendency to devise typologies that relate
specifically and only to the particular set of clusters being studied, with
little or no intention to discern elements or features that might be of wider
relevance.
The proliferation of cluster typologies may well be a genuine
attempt to recognise the diversity of cluster forms and cluster
development. But appeals to such diverse forms, sizes, stages of
development, emergence, depth, breadth, level of aggregation and the
like, is equally an indication that the cluster concept is something of a
chaotic one. Porter sees the Italian industrial districts as one form of
cluster just as high-technology areas such as Silicon Valley are another.
What he calls clusters, French analysts refer to as ‘local production
systems’ (see DATAR-OECD, 2001). Recently, drawing on a survey of
European examples, Crouch et al (2001) see ‘empirical clusters’ as one of
three types of local production system, distinct from industrial districts on
the one hand and what they refer to as the ‘networked firm’ on the other.
In contrast, in his discussion of the role of regions in the recent
competitive resurgence of the US economy, Best (2001) uses the terms
industrial districts and clusters interchangeably. And so the confusion
goes on. Classification is of course an important stage of theorising and
analysis. But to be meaningful and useful, typologies need to be based on
in-depth comparative analyses of cluster profiles and processes
(Markusen’s (1996) typology of industrial districts provides some pointers
in this regard). Despite the vast and still expanding literature on clusters,
however, there has been little detailed work of this kind.

4. What Sort of Theory for What Sort of Cluster?

All of which begs the issue of the status of ‘cluster theory’. Porter’s
‘clusters’ are constructs. They are as much analytical creations as they are
naturally occurring phenomena. They have no essential self-defining

18
boundaries, whether in terms of inter-sectoral, inter-firm linkages,
information networks, or geographical reach. The notion is so generic that
it used as a sort of cover term to refer to a whole assortment of types and
degrees of specialised industrial localisation (for example, see Porter,
2001). Little wonder then, that cluster theory is in a similar state of
confusion.
According to Porter:

A variety of bodies of literature have in some respects

recognized and shed light on the phenomenon of clusters,
including those on growth poles and backward and
forward linkages, agglomeration economies, economic
geography, urban and regional economics, national
innovation systems, regional science, industrial districts
and social networks. … Overall most past theories address
aspects of clusters or clusters of a particular type. (1998,p.
207).
While eclecticism can be a virtue under certain circumstances, forging a
theoretical synthesis out of this list of perspectives would seem a dubious
endeavour. Yet this is what Porter tries to do. He sees his task as
“embedding clusters in a broader and dynamic theory of competition that
encompasses both cost and differentiation and both static efficiency and
continuous improvement and innovation, and that recognises a world of
global factor and product markets” (op cit, p.208; see also Porter, 2000).
Porter’s theory of competition is not simply about cost advantages and
factor inputs, but also about ‘strategic positioning’ by companies, that is
choosing activities that are different from and superior to those of rivals.
The importance of clusters, Porter argues, is that by providing a
favourable local environment of competing firms, specialised inputs, and
supporting institutions, they foster the inter-firm rivalry and knowledge
spillovers that promote a dynamic process of strategic positioning and
‘best practice’ - and hence ‘competitive advantage’ - of the firms involved.
Essentially, Porter sees a cluster as a self-reinforcing system that
stimulates the competitive strategies of the firms in the cluster and hence
the ‘competitiveness’ of the cluster itself. He then argues that these
processes depend in part on personal relationships, face-to-face

19
communication and social networks (social capital) so that “cluster theory
bridges network theory and competition”(Porter, 1998, p. 226). He goes
even further: “Clusters offer a new way of exploring the mechanisms by
which networks, social capital and civic engagement affect competition”
(op cit, p. 227). What is being proposed here, therefore, is nothing less
than a general theory of clusters and their socio-economy.
Two questions immediately arise. First, to what extent it is possible
to construct a universal theory of cluster formation, dynamics and
evolution capable of covering the wide range of cluster types and
processes thought or argued to exist, without degenerating into superficial
generalities of the sort that have surrounded industrial districts (see Amin,
2000)? And second, just how far can the full complexity of economic,
social and institutional factors and processes alleged to underpin cluster
formation, development, and success, be reduced to or subsumed within
an overarching concept of ‘competitiveness’?
Consider the latter point first. In Porter’s work the notion of
‘competitiveness’ is used to link a variety of conceptual scales: the
individual firm, the industry, the regional or local business cluster, and the
nation. For Porter, firms compete, clusters compete and nations compete.
He talks of the ‘competitiveness of locations’ (see Porter, 1998). At the
heart of Porter’s ‘theory of competitiveness’ is his longstanding idea of
‘competitive strategy’. He suggests there are three generic strategies that
companies must follow to establish a lead in their market: differentiation
(of product or service), cost leadership, and focus strategy (focusing
activities on the needs of specific segments of the market). The role of
clusters in this theory is that through concentrating the interaction
between the elements of the ‘competitive diamond’ they enhance all three
aspects of strategy. But while clustering may well enhance the
competitiveness of firms, this is not the same thing as talking about the
‘competitiveness of clusters or locations’. Locations obviously can not
develop competitive strategies in this sense (though many policy-makers
seem to believe they should).

20
 In any case, several authors have criticised Porters’ three generic
competitive strategies as being too superficial, for lacking specificity, for
being difficult to measure, and for not being as independent of one
another, or as universally applicable, as Porter assumes (Miller, 1992; De
Karre Silver, 1997; Segev, 1997). As Buckley, Pass and Prescott (1988) have
shown, the notion of competitiveness is highly complex and in terms of
process, management and measurement, varies with the economic scale at
which the concept is being used. Indeed, yet other economists view the
very notion of ‘competitiveness’ with extreme scepticism. They argue that
while the term may have meaning at the level of the firm, it becomes
increasingly more problematic as we move up the scale of economic
aggregation (see, for example, Krugman, 1994, 1996: Turner, 2001).
According to these authors, nations and regions do not compete with one
another in the way that firms do. The analogy between a company and a
nation or region is false. To suggest that nations and regions compete
implies a sort of zero-sum game, in which one nation or region wins at the
expense of another, whereas in reality trade should be seen as an exchange
from which both benefit through the principle of comparative advantage.
Yet a further complication is that Porter’s competitiveness theory of
clusters is founded on the assumption that the important clusters are
orientated to external trade. The focus on competitiveness only makes
sense in this context. But what about clusters – and indeed other spatial
economic agglomerations – in which the bulk of activity is orientated to
satisfying local demand? Acccording to Krugman and Turner, contrary to
what most discussions of globalisation imply, a far higher proportion of
what is produced in a city or region is now consumed in that city or region
than was the case, say, fifty years ago; a bigger share of economic activity
occurs in local consumer and public services of all kinds whose output is
consumed in that location; a smaller share is in the form of goods and
services that are shipped to other cities, regions and nations (for example,
Krugman (1996) estimates that only a quarter of Los Angeles’ economy is
traded). What matters for the prosperity of locations, cities and regions is

21
their productivity, or more accurately their productivity growth. And that,
Krugman argues strenuously, has nothing to do with ‘competitiveness’.
If there are difficulties with clusters in Porter’s theory of
competitiveness, the generality of his cluster concept compounds the
problem. Clusters vary considerably in type, origins, structure,
organisation, dynamics, and developmental trajectory, yet Porter’s theory
is supposedly intended to fit all. It is not clear, however, whether this is
because it is assumed that all clusters can be explained in the same way,
despite their diversity, or because the highly general nature of the theory
is intended to cover all eventualities, allowing analysts to pick and choose
different elements to suit different types of cluster. The difficulty is that
Porter’s cluster model actually combines ideas from quite different
perspectives - from agglomeration theory to social network theory - some
of which are complementary and others much less so. As a result,
empirical observations of clusters and clustering can then be interpreted in
quite different ways, thereby buttressing a generalised notion of the
benefits of clustering by conflating elements for which there may actually
be little evidence with elements to which the evidence more directly
relates.
In response to this shortcoming, Gordon and McCann (2000), argue
for distinguishing three main cluster models (theories). The first is the
‘pure agglomeration economies’ model, which they trace from Marshall
through to modern urban economic theory, and which emphasises the
external economies of geographical concentration. The second is what they
call the ‘industrial complex’ model, in which clusters are seen primarily as
the spatial counterparts of the input-output models of regional economics,
as geographical concentrations forged by inter-firm trading links and the
minimisation of transactions costs. And the third is the ‘social-network’
model, which as the term suggests interprets clusters mainly in terms of
strong local networks of inter-personal relations, trust and
institutionalised practices. Gordon and McCann argue that

22
 Defining analytically which of these types is the
dominant structural characteristic of a particular
cluster (or set of clusters) is essential, in order to be
able to discuss their performance empirically, and to
determine what more general lessons may be drawn
from that (2000, p. 515).

They go on to suggest, for example, that the agglomeration economies

model best explains the clusters in the London region in the South East of
England (a result that suggests that they may be conflating economies of
large-scale urbanisation with economies of localised agglomeration along
neo-Marshallian lines)
However, this tripartite theoretical schema is not at all convincing.
For one thing it fails to specify the particular circumstances, economic and
spatial, under which one theoretical model should be more applicable
than another. To be convincing, cluster theory ought to be able to specify
a priori how different sorts of cluster are likely to develop under different
conditions. Otherwise, explanation is reduced to a ‘best-fit’ exercise on a
case by case basis.
Second, as Gordon and McCann themselves acknowledge, these
three theoretical models are ideal-types. Each isolates a particular
clustering mechanism, and effectively defines both the cluster type and its
explanation in those terms. Of course, all models and theories involve
isolation and closure, both of the object of enquiry and the causal
mechanisms invoked, but the method and form of isolation have crucial
consequences for how we represent and interpret phenomena. By setting
up three ideal-typical cluster models, in effect Gordon and McCann are
making claims as to what, in each of their cluster models, is essential and
what is inessential, what is causally primary and causally secondary. But
by their very nature, ideal-typical models never fit reality exactly, and in
this case it is difficult to think of a pure agglomeration economies cluster,
a pure industrial complex cluster, or a pure network cluster. While
Gordon and McCann admit that a given cluster may contain elements of
more than one model, nevertheless they insist that

23
 Contrasts in the policy implications of these three ideal
types of cluster make it particularly important to avoid
confusing features of one with those of another, even
though elements of each may co-exist in particular
situations (2000, p. 528)

In reality, we suspect, some degree of co-existence is likely to be common.

And what are social networks in this context other than a particular form
of external economy associated with agglomeration?
In the same way that Markusen (1996) has shown in relation to
‘industrial, districts’, the fact that clusters can apparently take on such a
wide variety of forms and types raises critical issues of the usefulness of
general theories, of the role and validity of ‘hybrid’ models, and particular
explanations. Once again, the highly generic nature of the cluster
approach comes at the cost of theoretical depth and precision. Indeed,
much of the theoretical exposition on clusters is quite tautological and
teleological in the sense that clusters are defined, a priori, as beneficial
groupings of firms, and their existence is then explained in terms of these
benefits. As the proposed benefits of clusters are argued to be cumulative,
the outcomes of clusters can also used as explanations of their origins. The
causal logic is collapsed into a blurred mixture of simultaneous cause and
effect. As Storper (1997) rightly argues, this type of logic cannot explain
why some agglomerations prove to be dynamic and adaptive while others
do not. Not only does Porter’s approach struggle to distinguish successful
from non-successful clusters (Best and Forrant, 1996), it tells us very little
about specific regional evolutions and their underlying causes.
Perhaps because of these confusions, there is an increasing
tendency to explain cluster development in terms of the evolution of local
knowledge and ‘collective learning’ (see for example Pinch and Henry,
1999; Hassink, 1997; Steiner and Hartman, 1998, 2001; Keeble and
Wilkinson, 2000). The argument is that in a globalised economy the key
resources for competitiveness depend on localised processes of knowledge
creation and collective learning, in which people and firms learn about
new technology, learn to trust each other, and share information. The

24
emphasis is on the role of ‘tacit’ as against ‘codified’ knowledge, in that
the former is seen as more conducive to rapidly changing markets, and
flexibly specialised innovative activity, whereas codified knowledge is
equated more with standardised mass production type activity. Tacit
knowledge, therefore, is viewed as depending crucially on localised face-
to-face contacts and spillovers. Indeed, the assumed link between
localisation and tacit or informal, uncodified knowledge is now almost
accepted automatically (Breschi and Lissonie, 2001). And according to
Leamer and Storper (2001) in the new information economy not only is the
role of tacit knowledge increasing, but this in turn is accentuating the
spatial agglomeration and localised specialisation of economic activity.
However, this local knowledge ‘cluster theory’ itself faces several
difficulties. First, despite the numerous assertions that ‘tacit’ knowledge is
the key to business success, this remains an unsubstantiated and obscure
proposition. In any case, as several authors argue, the distinctions
between different forms of knowledge are less clear cut and more fluid
than simple distinctions such as formal and informal, codified and tacit,
suggest (Amin and Condorcet, 1999; Breschi and Lissonie, 2001). Nor is it
convincing to argue that a given form of knowledge is inevitably linked to
one form of geographical socio-economic organisation (clusters) or any
one scale of social relationships.
Secondly, many accounts refer to localised uncodified knowledge
without making clear precisely what it is, or how it acts as a source of
competitive advantage. More helpfully, Lawson and Lorenz (1999) argue
that the key form of tacit knowledge may actually be embedded in firm
routines, which guide a firm’s innovativeness, problem-solving and
adaptability. Ironically, however, the problem here is that the cluster
literature, including Porter’s own approach, lacks any serious analysis or
theory of the internal organization of business enterprise (Best and
Forrant, 1996). Instead, it emphasises the importance of factors external to
firms. Thus the question of how firms can combine both co-operation and
competition continues to remain unanswered (Enright, 1996). As the

25
industrial districts debate has shown, factors such as a co-operative public
sphere or a communicative culture should not be seen as a collective
resource which emerges from nowhere and can be tapped by all. Rather,
such structures develop over time from the repeated contracts between
firms and the risks taken by entrepreneurs (Lazerson and Lorenzoni, 1999;
Cohen and Fields, 1999). In too many accounts local ‘territorial learning’ is
privileged and its interactions with firm-based learning are left completely
unexamined (Hudson, 1999). Related to this, and as May et al (2001)
rightly argue, given the current fashion for non-economic explanations,
cluster studies often assume that ‘institutional thickness’ refers to non-firm
institutions rather than examining the key institutions of firms and labour
markets.
Moreover, the cluster literature’s account of this new ‘knowledge
logic’ of competitiveness also appears somewhat contradictory. Porter
presents clusters as integral to a new form of competitiveness in a global
knowledge-based economy: in his words, “the configuration and the role
of clusters seem to be taking on a new character as competition globalises
and as economies become increasingly complex, knowledge-based, and
dynamic” (2000, pp. 253-4). At the same time, it is increasingly argued that
clusters are a significant feature of developing economies, and traditional
‘survival’ clusters of small enterprises in developing countries, such as
footwear, clothing and woodworking, are also explained in very similar
theoretical terms (see for example Fisher and Reuben, 2000). Again, these
sectors are seen as dependent on high levels of social capital. Collective
efficiency demands local co-operation and supportive governance by
public authorities (Schmitz and Nadvi, 1999). In reality, such clusters are
often based on low costs of production, low wages and have limited
growth potential and low productivity. Porter (1998) himself argues that
developing country clusters are ‘shallow’ and ‘hierarchical’ with only
island-like competitive firms. In many instances they do not make
convincing examples of a new logic of knowledge-based competitiveness,
yet some of the literature explains them in almost identical social capital

26
and learning terms. The typical response to these tensions is to introduce
yet another cluster typology; but the cluster species probably already has
too many sub-branches.
Perhaps we are trying to take cluster theory too seriously. Perhaps
we should just use the term more casually and descriptively, with little
regard for its theoretical consistency and coherence. But the danger of
such an approach is a deepening theoretical confusion and conceptual
fuzziness. For example, on the one hand, Porter (1998) argues that clusters
in advanced capitalist economies are not the result of urbanisation
economies. Generalised urbanisation economies, in his view, are becoming
less important as a source of competitive advantage, as they are more
widely available across the globe. In contrast, Simmie and Sennett (1999b)
argue that the multiple innovative clusters found in and around the
London region are to be explained primarily in terms of urbanisation
economies – the co-location of firms creating an effective demand for
factors of production, particularly finance, qualified labour and
technology (a not dissimilar argument is to be found in Gordon and
McCann, 2000, article referred to above). In fact, the whole of the South
East England region is highly urbanised and can be viewed as being
driven by agglomeration economies with high rates of spin-offs in service
industries (see Coe and Townsend, 1998). But if the South East’s dynamic
industries are based mainly on agglomeration economies rather than any
new logic of cluster competitiveness, why then use the highly confusing
terminology of clusters?
A further, and in our view fundamental, limitation of the current
state of ‘cluster theory’ is that it isolates clusters from the rest of the
economic landscape, and ignores other forms of regional and local
economic development and growth. In other words, it fails to consider the
dynamics of the inter-regional system as a whole, or the evolutionary
trajectories and interdependencies of firms inside clusters relative to those
outside clusters. In one of the very few attempts to take up this latter
challenge, Pouder and St John (1996) draw on a range of theoretical ideas

27
(from institutional evolution, organisational ecology, management
cognition, as as well as standard agglomeration economies) to construct an
evolutionary model of the development of clustered and non-clustered
firms. They propose that the economies of agglomeration that initially
draw firms together into clusters eventually erode. The competitive
strategies of firms in clusters, which are initially highly innovative
compared to firms outside clusters, tend to converge (for example through
mimetic and normative isomorphism) and to be less innovative over time
because cluster firms define their field of competition as the cluster to
which they belong, rather than as the wider external industry. This
restricted collective perspective gives rise to competitive ‘blind spots’
which limit cluster firms’ innovative potential, strategic positioning, and
ability to anticipate and react to industry–wide shocks. Non-clustered
firms tend to be less constrained and potentially remain more adaptable to
sudden system-wide changes. In effect, these authors sketch out a theory
of cluster formation, growth and decline, set against the background of the
development of the wider industry as a whole. The very networks of
interdependence that were a source of strength in the early phase of
cluster formation and growth are hypothesised to become, over time,
sources of inertia and inflexibility, relative to the firms outside the clusters.
While Porter does refer to potential problems of cluster decline, Pouder
and St John’s theory assumes that relative if not absolute decline is an
inherent systemic feature of cluster dynamics. Yet while their cluster
theory represents an advance over Porter’s in this respect, even their
approach fails to consider the dynamics of cluster formation and
obsolescence within a more holistic theory of uneven regional
development. This is where, potentially, economic geographers could
make a significant contribution; but unfortunately they seem to have all
but abandoned their former interest in theorising the development of the
economic landscape as a whole in order to focus too on particular types of
region economy (invariably successful regional economies) in isolation
from the wider inter-regional system as a whole.

28
4. Selective Empirics and the Cluster Creation Game
Obviously, a vaguely defined and theorised concept does not lend
itself to easy or precise empirical delimitation. In fact, in most
applications the geographical mapping of clusters is surprisingly
unsophisticated and stylistic. Whilst Porter’s diagrammatic ‘flow
diagrams’ of particular clusters of (up-stream and down-stream)
interlinked activities are often detailed, his ‘cluster maps’ are
extraordinarily simplistic, and typically consist of lists of clusters
(industries) by region or ‘cluster circles’ plotted in varying but
meaningless sizes (for example, see his map of regional clusters of
competitive US industries in Porter, 1998, p. 229). There is no agreed
method for identifying and mapping clusters, either in terms of the key
variables that should be measured or the procedures by which the
geographical boundaries of clusters should be determined. Not only do
different authors interpret and use the cluster concept in different ways,
they use different types of data and different methods to identify them
empirically. The result is that varying claims are made for how many
clusters exist and what their geographies are. For example, while Porter
(op cit) identifies and maps some sixty significant clusters in the US,
according to the Secretary-General of the OECD, the US contains no less
than 380, producing some 60 percent of the country’s output (Johnston,
2001). Yet again, while Porter identifies a mere handful in the UK, others
claim to identify several dozen (see Crouch and Farrell, 2001).
Empirical methodologies and ‘mapping’ strategies vary
considerably. At one extreme are the ‘top–down’ national mapping
exercises that utilise selective types of data to identify, on an industry by
industry basis, particular important localisations of specialised activity or
linked activities. At the other extreme are ‘bottom -up’ approaches that are
only concerned with identifying clusters in a particular regional or local
area, often in a highly qualitative, impressionistic way. In between are all
sorts of combinations. Even top-down studies take different forms.

29
Following Porter’s (1990) original major work on national
competitiveness, an initial stage in constructing clusters adopted by some
authors is to identify first those national ‘core’ industries that are ‘globally
competitive’, usually defined in terms each industry’s market share of
world exports, or of world value added. National input-output tables are
then constructed to determine the nature and extent of the trading
linkages based around these ‘core’, globally competitive industries.
Essentially, this approach to defining ‘national industry clusters’ seeks to
subdivide the economy by forming industrial groupings (clusters) linked
by particularly strong or distinctive supply-demand transactions. In other
accounts, attention is focussed on some other subset of activities, whether
they are globally competitive or not (e.g. high-tech industries). In yet
others, all of a nation’s industries are examined (see Miller et al, 2001;
Crouch, 2001). Since inter-industry trade data are rarely available for sub-
national geographical areas, in most top-down approaches the cluster
mapping exercise itself typically reduces to the mapping of regional or
subregional level data on employment and/or number of businesses in
order to identify ‘significant’ geographical concentrations of the industry
clusters being investigated.
The drawbacks of such analyses are obvious. Recall Porter’s
arguments that clusters typically cut across the sort of standard industrial
sector classifications used to collect employment, output and related
business data. Yet most top-down (and other) studies have no option but
to use data based on such classifications. To compound the problem,
census type geographical data on industrial employment and business
populations are collected on the basis of pre-given administrative and
political units - such as metropolitan areas and states in the US, and
standard regions, local authority areas in the UK, or NUTS regions in the
EU - which may bear no close relationship with the geographical
boundaries or reach of clusters, however the latter are defined. Moreover,
even with a given national context, the size of such regional or local data
collecting units can vary substantially. If the spatial units are too large,

30
they can overbound and obscure local clusters. On the other hand, since
the degree of local economic differentiation and specialisation tends to
increase as the size of geographical units decreases, the use of small area
data may exaggerate the number and significance of clusters.
Related to this last point, a further issue is that there is in any case
no agreement on what degree of spatial concentration of an industry or
industry group constitutes a cluster. Many studies employ location
quotients to measure relative spatial concentration, and high values of
location quotients are taken to indicate the presence of clusters. But
although these make some adjustment for the varying size of areal units,
they do not of themselves discriminate between the presence of a large
number of small or medium sized inter-linked firms, and a large single
firm employing the same overall number of workers. Associated data on
the geographical distribution of individual businesses by size and sector
are clearly essential. In addition, how much greater than unity does a
location quotient have to be to indicate the existence of a cluster (see Miller
et al, 2001)? In some studies, the statistical acrobatics employed to map
‘significant’ clusters are complex. For example, Ellison and Glaeser (1997)
use a sophisticated probabilistic firm location model to devise indexes of
agglomeration and co-agglomeration that control for differences in the
size-distribution of plants and for differences in the size of geographic
areas for which (employment) data are available, and which test whether
the observed degree of agglomeration is statistically different from what
would be expected from a purely random pattern of industrial location
(the so-called ‘dart-board’ model). (They find, interestingly, that in the US
almost all industries are somewhat localised, but that in many industries
the degree of localisation is slight). In other studies, the ‘rules’ used to
distinguish clusters are highly arbitrary (for an example, see the study by
bCrouch and Farrell, 2001).
The extensive methodologies of top-down mapping exercises can at
best only suggest the existence and location of possible clusters. They can
not provide much if any insight into the nature and strength of local inter-

31
firm linkages (traded and untraded), knowledge spillovers, social
networks and institutional support structures argued to be the defining
and distinctive features of clusters. Thus a common tendency is to
identify clusters in a piecemeal way and then deduce their benefits and
effects from the co-variation and co-location of selected variables. There
are two main reasons for this. First as Hanson (2000, p. 481) explains, “The
externalities that contribute to spatial agglomeration, such as spillovers
between workers, learning across firms, or cost and demand linkages
between local industries, are difficult to observe. We are left to infer their
existence from the covariance of observed variables such as wages,
employment and output.” This process of inference has produced some
very mixed and inconclusive results, and even when covariance is found it
is never precisely clear exactly what type of externality is responsible.
Some analyses attempt to isolate only one type of externality and do not
adequately control for other factors which may be affecting the observed
locational patterns of activities (Hanson, 2000). For example, there has
been a long-running and unresolved debate on whether localisation
economies are conducive to higher productivity and employment growth,
firm entry and innovation; or whether in fact urbanisation economies are
more important and beneficial (see Henderson, 1986, Henderson et al,
1995; Glaeser et al, 1992; Feldman, 2000).
Given the problem of establishing the precise boundaries and
composition of clusters, many studies take an easier route. That is, after
making a theoretical case for clusters – or more usually accepting Porter’s
cluster arguments as correct - they take relatively large scale geographical
units, such as states and regions, and make the highly contestable
assumption that sectoral employment totals for these units provide a
direct measure of the strength of cluster development in each location.
Thus if a region is found to have a high employment total in computing,
then it is assumed that it has a large computing cluster. For example,
Baptista and Swann (1998) examine the introduction of manufacturing
innovations across UK regions and conclude that a firm is more likely to

32
innovate if located in a region where the presence of firms in its own
industry is strong, as measured by employment, so that clustering furthers
innovation (see also Baptista, 2000; Beaudry, Brechi, and Swann, 2000). But
to what extent can the strength of regional employment in a sector be
taken as evidence of the existence of a cluster in that region? In response,
Baptista and Swann (1998) assert that agglomeration benefits and
externalities become stronger when the geographical level of analysis is
reduced, so that using relatively large scale regional data biases against
the relevance of spillovers and externalities. This may be so, but this
surely does not mean that clusters necessarily exist in regions where
employment in any one sector is high. A high regional employment total
could surely just as easily reflect the presence of several large, dispersed
and unconnected employers within that region. Furthermore, rather than
establishing the industrial and spatial boundaries of clusters prior to
testing, many of these studies use standard industrial classifications (such
as SIC, NACE) to identify broad industries. But this is dependent on the
assumption that clusters are geographical concentrations of related
industries within the same sector (see Baptista and Swann, 1999). But as we
have seen, this is not how Porter uses the term, and he repeatedly argues
that standard industrial classifications are arbitrary and possibly
misleading.
In view of these difficulties, it is perhaps not surprising that many
studies give up on the idea of identifying clusters directly. Instead, they
tend to rely on loose ad hoc means of identification (Doeringer and Terkla,
1995). This is particularly the case with many ‘bottom-up’ type cluster
studies. Some analysts simply ask local authorities or economic
development bodies to supply lists of ‘local clusters’ in their area which
are then studied in more detail (for example see Van Den Berg et al, 2000).
In many of these instances, however, what are claimed to be clusters often
turn out on closer empirical inspection to be small and only loosely
connected collections of similar or related firms, and sometimes have more
to do with local political and policy aspirations than with realities on the

33
ground. Indeed, some cluster enthusiasts appear to eschew any prior
empirical identification of clusters and, on the assumption that latent
clusters are out there everywhere if only their constituent businesses,
institutions, and agencies realised it, suggest the primary task is one of
encouraging businesses, institutions and actors themselves to ‘think in
cluster terms’. Thus, for example, according to Cluster Navigators Ltd
(one of numerous cluster consultancies and promotional bodies that have
sprung up in recent years):

Our experience is that extensive analysis is not required to

identify initial arenas [ie clusters] for collaborative
engagement [ie between cluster firms and policy-makers].
…The time for detailed analysis and systematic cluster
benchmarking is after initial engagement has been
obtained, not before (www.clusternavigator.com, emphasis
added).
This putting of the promotional cart before the analytic horse is
understandably attractive to cluster consultancies and public policy-
makers eager to enter the cluster promotion game. No doubt many (and
perhaps Porter himself) would be highly critical of our concern to put
detailed analysis before promotion and policy, and would argue that
excessive (academic) analysis only leads to policy paralysis; that the
detailed structure and workings of a cluster will become obvious soon
enough once we begin to think about an activity in cluster terms, however
broad-brush and descriptive our initial characterisation might be. But to
our minds, such arguments compound rather than circumvent the
difficulties surrounding the cluster concept, its empirical status and its
policy role.
They also render many of the claims about the superior
performance of clusters of dubious validity. Clusters, it is argued, raise the
productivity, innovativeness, competitiveness, profitability and job
creation performance of their constituent firms, of the geographical areas
in which the clusters are located, and thence of the wider national
economy. Not only do clusters allegedly achieve all this, they would seem
to offer policy-makers a convenient strategic arena in which they can

34
pursue their supply-side economic policies in a focused and integrated
way .
But what is the evidence for these claims for the benefits of clusters?
Some advocates assert that the economic advantages of clusters have
already been empirically demonstrated (Baptista, 2000). Even the
Secretary General of the OECD states that it has been shown that being
located in a cluster raises the profitability of firms on average ‘between
two and four percent’ (DATAR-OECD, 2001, p. 8). A more detached
review suggests that the evidence is incomplete, and that far more detailed
comparative research needs to be carried out to determine the precise
extent to which, and the precise conditions under which, clustering does
raise firm performance and innovativeness. Much of the evidence used in
support of the superior performance argument is anecdotal and based on
success stories about particular locations (Malmberg, 1996), and there are
few extensive studies which document how common and important
clustering is within particular industries (Malmberg and Maskell, 1997), or
studies that carefully compare similar firms inside and outside of clusters.
One of the few such detailed studies, of metalworking across the
US by Harrison and others (1996), actually found no evidence that firms in
local concentrations adopted new technologies more rapidly than their
more geographically dispersed or isolated counterparts. Likewise, in their
study of the impact of clusters on firm growth and innovation for a range
of industries across Europe, Beaudry, Brechi, and Swann (2000) found the
results to be ambivalent. While firms located in clusters that were strong
in their own industry tended to grow faster and have higher propensities
to innovate, firms in clusters that were strong in other industries did not
have faster growth and innovation rates. Moreover, it has not been
conclusively shown that regions based on specialised clusters consistently
enjoy a higher rate of economic growth (Steiner, 1998; Rodriguez-Pose,
2001). At the very least, the case that clusters invariably boost business
performance and local economic development is not conclusively proven
(Best, 2001).

35
 Far from being the general rule and the key missing link in local
competitive advantage, the benefits realised from geographical clustering
appear to specific to certain industries at certain stages of development in
certain places, and are only realised under particular conditions
(Glasmeier, 2000). For example, Audretsch and Feldman (1996) examined
the distribution of commercial innovative activity across the US and
concluded that the propensity to cluster is itself greatest in industries with
a high dependence on new economic knowledge, as captured by industry
and university R and D, and skilled labour. Indeed, the dominant view is
now that clustering is most significant in sectors that are dependent on
tacit or informal knowledge, often in pre-commercialisation stages
(Audretsch, 1998; Keeble and Wilkinson, 2000). But even within high-
technology and knowledge-based activities, the significance of clustering
has been found to be variable and produced by different processes. Thus,
studies of computing in the US and the UK find that employment growth
is promoted by own sector employment within particular states, and that
firm entry is positively associated with regional employment in only a few
subsectors, mainly hardware and components (Baptista and Swann, 1999).
A similar study of US biotechnology, however, concludes that firm
employment growth has been positively associated with own-sector
employment but that firm entry in this case is attracted by the strength of
the science base more than by own sector employment with a particular
state (Swann and Prevezer, 1996; Prevezer 1997). The common message
from studies of biotechnology and aerospace in the UK is that there are
signs of clusters only in certain parts of these industries (Prevezer, 1997;
Shohet, 1998;,Beaudry, 2000). There is no evidence that firms in some
biotechnology sectors (for example related to food, chemicals, and
agriculture) attract each other, possibly because large firms are able to
absorb and internalise any knowledge spillovers. To complicate things
further, a study of UK financial services, using the same methodology,
found that own sector employment has promoted both employment

36
growth and firm entry, while other-sector employment negatively affects
firm growth due to congestion effects (Pandit et al, 1999).
Given that there are so many different ways of identifying clusters,
their advocates can always counter any disappointing results or criticism
of their findings by insisting that the cluster boundaries or their economic
outcomes have been incorrectly and inappropriately specified and
measured. Ultimately, it seems that it is impossible to definitively support
or reject clusters with empirical evidence, as there are so many
ambiguities, identification problems, exceptions and special cases.

5. Cluster Policy: Hard Targets or Fashion Labels?

Despite these weaknesses, cluster promotion polices are
increasingly popular and have been adopted by a host of local, regional
and national authorities. Few other ideas can begin to rival the current
popularity of the clusters notion amongst local economic practitioners and
national and regional policy communities: “It is difficult to identify
another equally obscure concept that appeals to such a broad spectrum of
academic disciplines, professions and even lay people” (Bergman, 1998, p.
92). Given that there is so little empirical work which conclusively
demonstrates that clustering actually produces increased local economic
prosperity, this extraordinary popularity begs explanation. However, as
there is no agreed and shared definition of what a cluster is, it is hardly
surprising that there is no one single model for such policy. In many
instances cluster labels are attached to quite different sorts of policies. As
Feser and Bergamn (1998, p. 246) argue “The cluster concept is so broad
and its connections to economic performance so multifaceted that it is
often difficult to infer specific policy meaning from the typically broad
and generalised cluster studies.”
In terms of recommendations on best practice, however, there is a
consensus that cluster promotion policies are unlikely to succeed in
creating clusters de novo (Schmitz and Nadvi, 1999). Rather, they should
somehow attempt to build on the potential already present in a particular

37
economy. While this seems sensible advice, it begs the question of what
authorities should do if they lack the basis of embryonic clusters. Such a
question is not just hypothetical, since it has particular relevance to
debates on cluster promotion in lagging peripheral regions in developed
economies as well to a wide range of developing countries. No convincing
answers are given in the cluster literature. A typical response is to argue
that there few if any regions that have no cluster potential, however
limited that might be. Allied to this, one of the reasons why national
governments seem so enthusiastic to embrace cluster policies is that they
fit in well with a growing trend towards the decentralisation of policy
responsibility and an associated emphasis on developing the indigenous
potential of localities and regions. But here too, recommendations about
the delivery of cluster policies also remain fairly vague and do not
represent a simple blueprint. Enright and Ffowcs-Williams (2001) argue,
for example, that the level of government best suited to providing cluster
support policies should be that most closely matching the geographical
extent of the cluster. However, as we have seen, cluster mapping is often
much more problematic than it first sounds.
The standard rationale for cluster policies is they can help promote
the supply of those local and regional public goods which are absent due
to market failure (OECD, 1998; Scott, 1998). Four main varieties of such
goods are usually identified. First, cluster policy emphasises the benefits
of creating co-operative networks and encouraging dialogue between firms
and other agencies. In such networks, it is claimed, firms can exchange
information, pool resources, design collective solutions to shared
problems and develop a stronger collective identity. Thus some cluster
policies start by appointing brokers and intermediaries to organise these
dialogues. This, it is suggested, can also yield a better co-ordination both
between public and private agents and between different public agencies
so that the impacts of different policy and regulatory measures on
particular clusters can be monitored and managed (Lagendijk and
Charles, 1999). Second, and related to this, cluster policies often involve
collective marketing of an industrial specialism, based on place marketing

38
and raising awareness of the region’s industrial strengths. Cluster policy
typically represents a relatively cheap form of regional policy, but it is one
that is able to raise the public relations profile of particular economies.
Third, it is also argued that cluster policy should aim to provide local
services for firms such as financial advice, marketing and design services.
The firm extension centres in the US are often used as an example. A key
recommendation is that local service provision should be targeted on
particular industrial specialisms so as to ensure that it meets specific local
needs. For instance, a widespread aspiration for some high-tech initiatives
is to develop links with relevant university research facilities. The best
practice in the provision of services to firms is apparently to provide
subsidised or free services until firms learn to appreciate their value and
then to switch to provision on a self-funding market basis. Fourth, it is
argued that cluster policies should identify weaknesses in existing cluster
value chains and attract investors and businesses to fill those gaps and
strengthen demand and supply links. In some cases, marketing strategies
should target particular types of investor who will add key pieces to the
cluster jig-saw.
It is by no means our intention to argue that all of these measures
are, in themselves, misguided and of no benefit to local and regional
economies. However, what is dubious is whether setting and attempting
to implement such policies within a cluster framework actually improves
their effectiveness and outcomes. In many cases it appears that the cluster
framework is either unnecessary or even constraining. The decentralised
promotion of local indigenous economic potential certainly does not
depend on a cluster approach. The first major problem inevitably
encountered by cluster frameworks is how the boundaries of the relevant
initiatives should be drawn. Which firms should be left out? How far up-
stream and down-stream of the ‘core’ cluster activity should policies
extend? There is a fundamental tension between the public policy desire to
include as many firms as possible and the notion that policy interventions
can be more cost effective and represent better value-for-money if they are
targeted in some way. But if the policy is too targeted, then it starts to look

39
like old style industrial policy and too close to the discredited notion of
‘picking winners’. The tension is nicely captured in this ambiguous advice
by Enright and Ffowcs-Williams (2001, p. 5): “A policy on clusters should
aim to provide services that all firms merit access to, whether they are
clustered or not, but in a more targeted fashion.” In the case of generic
services, which would benefit all firms, it would seem preferable to drop
the cluster framework all together. Moreover, is it really wise to exclude
certain firms from ‘institutional dialogues’, particularly when the future
course of local industrial and technological change is so hard to predict,
and previously marginal firms can become key nodes in the local
economy? Indeed, partly in response to this, Danish industrial policy has
shifted to using the less exclusive notion of ‘resource areas’ (see Drejer et
al, 1999). The linkages in wider and more diverse networks may well be
weaker but they may provide greater long-run local adaptability (Grabher,
199*).
In most cases it is clear that, strictly speaking, most cluster policies
do not identify working clusters, but rely instead on more immediately
and statistically visible broad industrial sectors. Policy makers are clearly
under pressure to find clusters in as many regions as possible for fear of
offending some regional interests. The Sainsbury (1999) report on
biotechnology clusters in the UK, for example, finds established
biotechnology clusters around Cambridge and Oxford, but also identifies
earlier clusters in the North West, Surrey, Sussex, Kent, the North East, the
North West, North Yorkshire, Wales, London, Central Scotland, Wales;
that is, in almost all regions of the country, even though in many of the
latter the ‘clusters’ are small and lack the inter-firm linkages and spillovers
that are held to be key cluster features. Likewise, in the DTI’s more recent
general investigation of business clusters across the UK (Miller et al, 2001)
there is an obvious political tension between mapping significant industry
clusters wherever these happen to be on the one hand (and many are in
South East England), and ensuring an even spread between the various
Regional Development Agency areas, on the other. Furthermore as
Rosenfeld (2001) notes, there is also a striking similarity between the

40
clusters distinguished in many cluster initiatives. Partly in response, Feser
and Bergman (2000) offer a national template in an effort to make cluster
identification in the US more rigorous and feasible. But, in general, given
the enormously practical difficulty of identifying working clusters and the
inevitable ambiguities and complexities involved, it is asking a lot of local
and regional public authorities to carry out detailed and intensive cluster
investigations and analyses. Without these investigations however, it is
impossible to identify weak links in existing value chains or to spot
potential relations between firms that can be nurtured. Moreover, in the
context of their typically limited resources, it is unrealistic to expect local
and regional authorities to detect how different industries are developing
and to anticipate the necessary service requirements. More generally, how
should public authorities distinguish market failures in service provision?
If firms are not paying for particular services, does this indicate a lack of
information or a shared fear of free-riders; or is it because the services are
not really needed?
Another important ambiguity in the literature is whether policy
should aim to differentiate between different clusters and, if so, in what
ways. On the one hand, Porter (1996; 1998) recommends that policy
makers should not try to discriminate between clusters; rather, he suggests
that ‘it is not what you do but how you do it’ that matters, and favouring
some clusters is “bad economics”. On the other hand, as we have already
noted Porter (1998) argues in a neo-Keynesian manner that it is outward-
oriented (export-based) clusters, rather than those supplying local
demand, that are the primary long-run source of economic growth and
prosperity. The underlying issue is that it is unclear whether and in what
wayspolicy makers should respond differently to different types of
cluster. For example, should declining clusters be treated in the same way
as those which are growing? Research on clusters in Latin America reports
that most are survival clusters of micro scale enterprises with limited
competitive potential and concludes that appropriate policy responses
have therefore to be quite distinctive (Altenburg and Meyer-Stamer, 1999).
In such contexts there is surely a need to distinguish between clusters

41
according to their potential (Fisher and Reuben, 2000). A further issue is
whether inter-firm collaboration is appropriate in all industries, and to
what extent policies can promote both competition and rivalry, at the
same time as furthering cluster dialogues and firm collaboration (see
Enright. 199*). How are public cluster sponsors supposed to know when,
and on which issues, to encourage knowledge sharing and exchange, and
when to urge knowledge retention and proprietary secrecy in order to
sustain innovation incentives and rewards?
In the context of these uncertainties and questions, it is increasingly
evident that policy makers, seeking safety in numbers perhaps, tend to be
drawn to promoting similar varieties of ‘high-technology, knowledge-
based’ clusters. But, even assuming that the new knowledge economy has
a coherent meaning, it is unlikely that all regions can rely on the same,
high-skill, knowledge-intensive sectors. As Keep and Mayhew (1999, pp.
57-8) have argued

While it is relatively straightforward to aspire to the high

performance vision when it is applied to some sectors of
the economy, it becomes a very much greater challenge
when the focus shifts to the economy as a whole. Policy-
makers need to guard against the dangerous tendency to
seize upon leading edge practice located within a
particular sector or competitive environment and then to
assume that this can be, or indeed is being generalised
across the entire range of economic activity.

Nevertheless, such generalisation or replication is precisely what Porter

appears to be currently advocating. His present cluster mapping project
across the US is expressly aimed at identifying ‘best practice’ in successful
clusters as a ‘blueprint’ for promoting innovativeness and competitiveness
across regional America as a whole. While successful clusters may well
hold lessons for policy practice elsewhere, the idea that there are cluster
‘blueprints’ that can be readily implemented in quite different local
economic, social and institutional contexts is highly debatable. Cluster
policy texts also say little about how inter-regional, distribution issues
should be approached. If one region implements a new cluster strategy

42
should this be allowed to undermine established clusters elsewhere or
should regional clustering somehow be made complementary (DTI, 2001)?
Porter (1996) argues that regional authorities should avoid “smokestack
chasing” since using tax incentives and subsidies to bid against each other
to attract key inward investors produces a zero-sum competition. Yet, in
practice, cluster policies are surely likely to encourage such competition.
What is striking is that in much of the literature on cluster policies,
there is no real reason why place marketing and the advertising of
industrial specialisms really needs to be tied to a ‘cluster’ label of doubtful
relevance and content. There is no reason why co-ordination between
different policies and groups should be handicapped with a confusing
cluster framework, or why the provision of demand-led, productivity
enhancing services to firms would be improved by setting up some
imagined cluster boundaries. Furthermore, there are many types of
network policy which promote information sharing between firms which
do not depend on a cluster framework and remit (see, for example, Cooke
and Morgan, 1998). Indeed as Rosenfeld (2001) argues, what has happened
in actual fact is that many local authorities have backed into cluster
initiatives from pre-existing network support programmes.
It is also important to recognise that there are several potential
dangers associated with promoting clusters (see Table 2). First, cluster
policies are often based on an exaggerated view of the extent to which
firm performance is determined by its local context. For instance, Porter
(1998) claims, “The presence of clusters suggests that much of competitive
advantage lies outside a given company or even outside its industry,
residing instead in the locations of its business units”(p. 198). But this is
over-generalised. If a company suffers from poor management, culture
and practices it is hard to believe that it can rely on the competitive
advantage of its location. While internal and external advantages are
clearly not independent, it seems ill-advised to argue that “There is a need
for firms to adopt new strategies: instead of an individual ‘search for
excellence’ they have to go for a co-operative approach because ‘as a
group we are stronger’”(Steiner, 1998, p. 4). While supporting institutions

43
and a networked semi-public sphere may often be necessary for
innovative and dynamic firm performance, such factors are unlikely to be
sufficient.
Local and regional specialisation also represents a risky strategy. At
one point, Porter argues that as economies develop they tend to specialise
and rely on a smaller number of fewer, deeper and more sophisticated
clusters. Elsewhere, however, he argues that the most important new
departures, which frequently revive local competitiveness, come at the
intersections between clusters. But if cluster numbers are declining over
time, these radical departures will also be less numerous. The risk of
decline and profound instability in specialised regional economies is well
known and its relevance has been underlined by the recent downturn in
Silicon Valley. Economic landscapes are littered with local areas of
industrial specialisation that were once prosperous and dynamic but have
since gone into relative or even absolute decline. Porter himself argues
that the causes of decline can be both internal to the cluster and the result
of radical changes in external conditions, such as technological
discontinuities. Internal decline will be rapid if the cluster suffers from the
lock-in of established ways of thinking and doing things, and there are
some authors who suggest that a reliance on local face-to face and tacit
knowledge do indeed make local networks of industry especially
vulnerable to lock-in (Amin and Condorcet, 1999). Clustered firms may be
capable of incremental and continuous improvement within certain
parameters, but may be unable to adapt to radical shifts in technology and
product (see Pouder and St John, 1996; Loasby, 1998). None of the swelling
ranks of cluster adherents seem to explain how policies should respond to
these dangers. Fritz et al (1998) argue that policy makers should see local
industrial specialisation as having a risk-return trade off, plotting the risk
of ossification against the higher returns gained from clustering (a point
made years ago by Conroy, 1975, in his study of regional specialisation
versus regional diversification). The difficulty is that while we know what
the risks are, the case for higher returns is unproven.

44
 Table 2. Clusters have Costs as well as Benefits
Claimed Advantages Potential Disadvantages

Higher growth Labour cost inflation

Higher productivity Inflation of land and housing costs
Increased profitability Widening of income disparities
Increased competitiveness Over-specialisation
Higher new firm formation Institutional lock-in
High job growth Foreign take-over

A further risk related to clusters concerns that of localised inflation

and ‘overheating’. The cluster literature itself tends to downplay the
importance of cost-based competition. To quote Steiner (1998) again: “The
existence of clusters is the decisive element for the competitiveness of
regions and nations, not cheap land, labour, or energy, nor even high
subsidies and low social costs, nor even high technology strong and
leading industries” (p. 4). Other more cautious sources express concern
about the effects of clusters on local costs. For example, a DETR (2000)
report on clusters noted that the growth of industrial concentrations
tightens the labour market, leads to increased congestion and puts
pressure on the housing stock. It adds, “There is a real danger that the
unplanned growth of a cluster may destroy the very features conducive to
the development of the cluster in the first place”(p. 12). And “Firms with
lower margins may be forced out of the area and workers on lower
incomes, perhaps working in essential services or sectors which support
the cluster, find it more difficult to find affordable housing” (ibid.). The
report suggests that planning authorities should manage these constraints
and act to facilitate geographic dispersion as clusters mature. The question
of the impact of cluster growth on other local sectors of activity is
unresolved, however. The cluster orthodoxy would presumably be that as
costs rise in the cluster, less productive firms are either put out of business
or move away. In Porter’s view “Rising local wages and profits reflect
economic success. This means that less skilled and less productive
activities should move to other locations” (his emphasis) (p. 245). However,

45
if these firms are labour intensive this would have a large negative impact
on the local labour market. There is no theoretical guarantee that the high-
productivity growth firms will be able to absorb the excess labour. Those
working within the ‘core’ cluster firms in a locality may enjoy high living
standards and rising wages as a compensation for the growing congestion,
while those in non-core activities have to make do with inferior real wages
and living standards, or have to move away. It cannot, therefore be
assumed that the promotion of one or several clusters within a regional
economy leads to balanced economic development, or greater
competitiveness, or greater well-being across the entire region. Rather the
outcome will depend on how the cluster affects the costs and employment
of others sectors (Venables, 1996). Thus the competitiveness of a local
economy cannot be equated with the strength of particular industrial
concentrations even if these form a core component of the local economy.
Given these potential disadvantages, it would seem more advisable
for local and regional authorities to concentrate on encouraging
productivity improvements in all local firms, as well as improving their
business environments, without committing to a cluster mind-set. The
danger of a cluster-based approach to policy is that it detracts from the
need to take a more holistic view of regional development. It is likely that
dynamic regions will produce networks even without government
incentives (Rosenfeld, 2001). It is also noticeable that many of the
examples of public initiatives, supposedly illustrating successful clustering
strategies (such example in the City of London), have a long history that
far predates any use of cluster terminology or explicit cluster strategies.
Further, as Porter (1998) himself rightly emphasises, many of the most
significant influences on industrial development stem from the way in
which national regulatory frameworks influence the demand for
sophisticated products and hence the course of industrial innovation (also
DTI, 2001). Such regulation, along with the quality of the economic and
social infrastructure, may well represent a better focus for policy makers’
attention. At its best the current policy preoccupation with cluster

46
strategies looks like a fad for a fairly imprecise and flexible label for
differing combinations of measures.

6. Conclusions: The Cluster Brand?

Constructing a critical review of clusters is a difficult task. There are
now so many different varieties of clusters and so many confusing claims
about their theoretical basis, form, identification and significance that the
concept is peculiarly elusive and hard to pin down. The feeling that there
must be ‘more to it than this’ is endemic. The cluster literature is a patchy
constellation of ideas, some of which are clearly important to
contemporary economic development and some of which are either banal
or misleading. But there are two key limitations that we wish to emphasise
in conclusion. First, a concept so elastic as the cluster can not provide a
universal and deterministic model on how agglomeration is related to
regional and local economic growth. At present the siren of universalism
is pulling the cluster concept into shallow waters. It is being applied so
widely that its explanation of causality and determination becomes overly
stretched, thin and fractured. Second, and related to this, economic
geographers and other regional analysts have long been aware that just
because there is an association between some high-growth industries and
various forms of geographical concentration does not mean that this
concentration is the main cause of their economic growth or relative
success. The empirical case for clustering remains in its infancy and
repeatedly makes the mistake of jumping from particular associations to
general causality.
But this heterogeneity and chaos is only half the story. It would be
tempting to conclude that the notion of clusters has no real significance.
Yet this is clearly at odds with the enormous policy popularity of the
notion and the generous tolerance granted to the idea by a usually critical
academic community. The answer to this paradox may lie in the way in
which the cluster concept has been marketed by Porter and other
enthusiasts as a brand, rather than just another intellectual product. Just as

47
large corporations use branding to distinguish their products from other
largely indistinguishable products (for example see Klein, 2000), so the
‘cluster brand’ has been much more successful despite the existence of
many similar theories and policy recommendations of industrial
agglomeration. It has certainly attracted many more ‘buyers’ in the policy
and practitioner markets than its rivals. The reason appears to lie not so
much in the theoretical or empirical superiority of the concept but in the
way in which it has been branded or closely tied to a set of positive images
and associations. Again, just as branded products are ultimately image-
based so that consumers come to associate them with rewarding lifestyle
experiences, the cluster brand at its core is based on am image of a high-
productivity, knowledge-rich, decentralised, entrepreneurial and socially
progressive economy within the reach of local policy-markers (a regional
version of the American Dream, perhaps?). And just as brands are not
confined to particular products but can exploit synergies between them, so
we should expect the cluster idea to act as an umbrella brand for many
different things. The core meaning of clusters lies more in this image than
in a coherent and carefully defined set of ideas.
In short, Porter’s cluster idea displays all of the key features needed
for such a metaphor to assume the power of a successful ‘brand’ (or even
myth – see Harfield, 1998). First, the metaphor must accord with some
strong, if not always clearly defined, aspirations – in this case promoting
innovation and competitiveness. It must be expressed in language
sufficiently flexible as to permit a wide range of interpretations – in this
instance, the hybrid nature of the cluster concept. The metaphor must
have authority – here, Porter’s ‘expert knowledge’ on competition and
business strategy. It must be capable of continual and consistent re-
invention and re-application – Porter’s cluster concept is itself the latest
stage in his evolving theory of competitive advantage, now being actively
applied to the latest phase of economic development , the so-called new
knowledge economy. And the language of the metaphor must allow the
possibility of providing practical action – the cluster as a policy tool.

48
 It is as if, in effect, Porter has applied his theory of competitive
strategy – of strategic positioning – to his cluster idea itself. Clever
positioning and marketing of the cluster idea have been extremely
influential in selling it to policy-makers the world over. In adopting the
cluster idea, policy-makers purchase the ‘Porter brand’, and in doing so
serve to reinforce the brand’s prominence. What this implies, of course, is
that given the power of the ‘cluster brand’, academic critiques such as this
one are unlikely to have much of an impact on the concept’s popularity. It
is perhaps only as the actual limits to ‘brand-based policy making’
emerge, along with the marshalling of careful evaluative research, that the
grip that Porter’s cluster idea currently exerts on analytical and policy
circles will lessen. As Santayana reminds us (in the quote at the beginning
of this paper), fashionable ideas tend to share one thing in common: they
all eventually become unfashionable.

49
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