What About Industrial District(S) in Regional Science?

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What about Industrial District(s) in Regional Science?

Fabio Sforzi and Rafael Boix University of Parma (Italy), University of Valencia (Spain)

Abstract.

Keywords:

JEL:

1. Introduction: The thesis

The insertion of the industrial district (ID) in Regional Science (RS) is only possible through a reversal of the analytical perspective that identifies the heart of the matter in the problem of the "unit of investigation". So it raises the question of what should be the appropriate unit for studying economic facts by a real "regional" perspective. In our opinion this unit should be the "region".

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The identification of the "region" as the unit of investigation is what should distinguish RS from other sub‐disciplines of Economics (e.g. the Industrial Economics or the Urban Economics: the first being centred on the "industry", the second on the "city"). But, as we know, at the basis of the RS, as a new discipline, its founder, Walter Isard, placed the "location theory": that is, the location of individual (firm) and aggregate (industry) economic activities. It follows that the region is the result of a location. In other words, it is an "agglomeration of firms" (cluster) that defines a given place. The place has a "derivative status": i.e., it is a secondary concept. But the ID is a place‐based concept, in the sense that the place (local community) is the condition for its definition both in theory and in practice. So that from the ID perspective the place is a "primary concept". How to disentangle the matter? For many scholars the matter does not arise. Are those who believe that the district is an agglomeration (of SMEs) resulting from a location. Obviously, we disagree with this belief. To disentangle the matter we must begin by removing the "foundation stone" on which Walter Isard founded the Regional Science as a discipline.

2. The American bias

Isard opens the Chapter 2 of his 1956 (p. 24) book "Location and Space‐Economy" with a harsh critique of Marshall, which judged the time to be "more fundamental" than space in the framework of economic development:

The difficulties of the problem depend chiefly on variation in the area of space, and the period of time over which the market in question extends; the influence of time being more fundamental that that space (Marshall, 1920a, PE, V, XV, 1).

Isard makes Marshall responsible to have prevented the insertion of the space in Economics.

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The "prejudice exhibited by Marshall" − in the words of Isard − spread the belief (see, for example: Harvey, 1984, p. 8) that Marshall prioritized time over space:

The insertion of space, place, locale and milieu into any social theory has a numbing effect upon that theory’s central propositions [...] Marx, Marshall, Weber and Durkheim prioritize time over space. And, where they treat the latter at all, tend to view it unproblematically as the site or context for historical action.

This misinterpretation of Marshall’s thought comes from having chosen the "wrong" Book of Principles of Economics (PE) where to look for answer to the problem of the insertion of space/place in Economics. Or maybe the matter is more simple. Isard had a conventional knowledge of Marshall’s thought and he made an instrumental use of Marshall’s statement − in search of "the villain of the story" − to support the originality of his suggestion of a space‐economy. Isard was not the only American economist who misinterpreted Marshall’s thought. Hoover (1971) misinterpreted the meaning of "external economies" by associating them to the "industry" instead of "place"1. So, when Isard (1956, p. 172) illustrated − following Ohlin − the agglomeration factors "neatly" classified by Hoover, the misdeed was final:

Following Ohlin, Hoover has neatly classified agglomeration (deglomeration) factors as follows: (a) Large‐scale economies within a firm, consequent upon the enlargement of the firm's scale of production at one point;

1 This misinterpretation is due to the perspective adopted, that of the "theory of location" of Alfred Weber (1909). Weber’s theory is about the firm and industry, is not about the place. Let us say it in the words of Isard (1956, p. 172): «In his classic work on location theory, Alfred Weber emphasizes three basic location forces. Two of these, transport cost differentials and labor cost differentials, interplay to determine the regional distribution of industries. […] The third general location factor, agglomeration (deglomeration) economies and diseconomies, acts, according to Weber, to concentrate or disperse industries within any given region».

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(b) Localization economies for all firms in a single industry at a single location, consequent upon the enlargement of the total output of that industry at that location; (c) Urbanization economies for all firms in all industries at a single location, consequent upon the enlargement of the total economic size (population, income, output, or wealth) of that location, for all industries taken together.

On the other hand, Hoover in his 1971 book An Introduction to Regional Economics (Hoover, 1971, p. 78‐79) wrote:

We can thus distinguish three levels at which economies of size appear. There are, in respect to any particular activity: (1) economies associated with the size of the individual location unit (plant, store, or the like); (2) economies associated with the size of the individual firm; and (3) economies associated with the size of the agglomeration of an activity at a location. We can refer to these economies, for brevity’s sake, as "unit", "firm" and "cluster" economies [...].

Hoover, in the footnote inserted at the end of this sentence, states the following (Hoover, 1971, Ch. 5, footnote 9, p. 79):

What are here identified as "cluster" economies are sometimes referred as economies of localization. Alfred Marshall’s succinct characterization of the "economies of localized industries" is often quoted from his Principles of Economics, 8th ed. (London: Macmillan, 1925), Book IV, Chapter 10. F.S. Hall’s Census monograph, "The Localization of Industries" (U.S. Census of 1900, Manufactures, Part 1, p. CXC‐CCXIV), reported on the development of highly clustered patterns of individual manufacturing industries toward the end of the nineteenth century. Unfortunately, however, the term "localization" has also been used synonymously with "location" and even in the sense of "dispersion", so it is best avoided.

This is "the American bias": (1) the prejudice against Marshall about space and (2) the disappearance of the Marshallian external economies. All this, to remain in the field of Regional Science2.

2 In Economics the misuse of terms such as "agglomeration economies" or "externalities" as synonyms of external economies is frequent. These three terms correspond to three different ways of conceptualizing the localized industries. Agglomerations and externalities are concepts introduced to explain the origins of the

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3. The criticism

Walter Isard is the founder of RS as a discipline / field of study. And E.M. Hoover is a co‐founder of Regional Economics. But, his reputation in the field of Regional Science is so high that his book opens the list of "Classics in Regional Science"3. Their ideas were so influential to have misled regional scientists and regional economists by preventing the discovery of (1) the "district" in the field of theory and (2) the "districts" in the social reality. So, "What about industrial distric(s) in Regional Science?". In the theoretical framework of Regional Science there is no chance for the ID(s). How to disentangle the matter?

4. Back to Marshall

Regional scientists – like other scholars interested in the industrial districts – know the contribution of ideas provided by Alfred Marshall for the conceptualization of the industrial district. Therefore we must "back to Marshall". And Giacomo Becattini will be our mentor. The purpose to go back to Marshall is not to look up "the definition of district" in his writings: simply because there is not! It is to prove that there is "another Marshall" who suggested Becattini "the idea of district". Becattini (1962) decided to deal with the Marshall’s theoretical system not from the side of mathematics, but from that of the ideological foundations. His belief was that only in this way the most original aspects of Marshall’s thought could be grasped. And history has proved he was right.

localized industries, the external economies, conversely, explain why an industry, after it was formed in a place, it tends to remain there for long. 3 See the website of the Regional Research Institute at West Virginia University: http://rri.wvu.edu/resources/web‐book‐rs/list‐of‐books.

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It is from this unconventional approach to Marshall’s thought that Becattini extracts a whole series of ideas that reorganizes in an original manner, and from which he derived the ID concept. The "invention" of the ID concept is by Giacomo Becattini. The cornerstones of the Becattini’s contribution are: (1) the centrality of human labour; (2) the conception of industry; and (3) the recovery of the Marshallian concept of economic nation. If you look for the ID definition in Marshall’s writings, you will not find it4. In Marshall’s writings you can find two main references that are at the foundation of the ID concept: ‐ the concepts collected in Book IV of PE; ‐ the concept of "economic nation" that Marshall introduced in Industry and Trade (Marshall, 1920b). Concepts collected in Book IV of PE are known: from the organization as agent of production to the knowledge as "engine" of production; from the local external economies to the "homines novi" as agents of reproduction of entrepreneurship. The concept of "economic nation" is little known. Few people know − or remember − that it played an important role in the conceptualizing of ID. Maybe even more important than the Book IV of PE. In Industry and Trade (IT) Marshall (1920b, p. 20) introduced the concept of "economic nation" as follows:

If the local spirit of any place ran high: if those born in it would much rather stay there than migrate to another place: if most of the capital employed in the industries of the place were accumulated from those industries, and nearly all the income enjoyed in it derived from its own resources: − if all these conditions were satisfied, then the people of such a place would be a nation within a nation [emphasis added].

What attracted Becattini’s interest in this concept was the "sense of belonging" that holds together these places. The sense of belonging in which "objective component " of a common interest and "subjective components" of a historical‐cultural nature are blended together.

4 Therefore, Ann Markusen (1996) is in the wrong when she contrasts "Marshallian" and "Italianate" industrial districts.

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The "sense of belonging" is one of the possible founding criteria for re‐conceptualizing industry (Becattini, 1962). It makes possible the conception of industry through the «awareness of economic agents (employers and employees) of belonging to a particular industry» (Becattini, 1962). The awareness forms inside the place where

a set of productions have the common characteristic of occurring under the same technical conditions, that is characterized by the same production process (Marshall as quoted by Becattini, 1962, p. 22‐23) [our translation].

This sense of belonging embeds the technology in the place where the production occurs (Becattini, 1962, p. 28):

since neither the production technique nor the relations of competition or alliance towards the counterpart from feelings of rivalry and solidarity that arise (e.g. between employers and employees) can be strictly separated from the culture and social relationships that go with[our translation].

This definition of industry is part of the background of the ID as a "socio‐economic concept", when Becattini says that the district «is a social machine that produces goods as well as people; because it moulds a distinguishing entrepreneurial and working mentality».

5. The Distric(s)

To sum up, the ID is a triadic concept: ‐ it is "unit of economic classification", that is a new way of defining industry (Becattini, 1979); ‐ it is a "unit of investigation", that is a new way of interpreting economic change (Becattini, 1987). ‐ it is a "socio‐economic concept", that is a way of organizing production (Becattini, 1989). As a new way of defining industry, ID replaces the traditional technological criterion. This criterion is "place‐blind", because it neglects the importance of places where the production actually occurs.

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As a new way of interpreting economic change, ID postulates the economic change forms concretely within/between places; so that it is a socio‐economic place‐based process. Thus ID paves the way to "local development". Let us take an example of two alternative models of local development: (a) the "industrial district", where the community of people interpenetrates a population of firms, and it furthers the change; and (b) the "industrial pole" where the community of people is subdued to a large company, and it undergoes the change.

Finally, as a way of organizing production, ID explains how a local community dominated by small entrepreneurs, specialized in producing parts or in manufacturing phases of the same product, achieves economies of production through co‐operation ("bundles of relationships" in which they are embedded). The cooperation is made possible by the system of values and views – like the «ethic of work and activity, of the family, of reciprocity and change» − shared by the local population, that generates mutual trust and gives importance to the reputation in life and in business, and facilitates the exchange of productive knowledge. This industrial organization can be competitive like that a single great establishment, when it comes to satisfy the "desire for variety" and the "desire for distinction" of groups of consumers spread all over the world. In other words, when the demand for certain classes of goods − for which the production process can be technically partitioned − is diversified (in places) and variable (in time). A place where the "community of people" and a "population of firms" intertwine, and the first furthers the change of the second. For brevity’s sake: the IDs identified in Italy and Spain, and in the UK (Sforzi, 2009; Boix, 2009, De Propris, 2009). The ID "productive" is therefore the result (all to be ascribed to Becattini’s theoretical thinking) of the "mash‐up" of two Marshallian concepts: ‐ the "community of people" which develops the Marshall’s concept of "economic nation" (IT)

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‐ the "population of firms" which develops the Marshall’s concept of place‐based "external economies" (PE). All these references are Marshallian "tools for thinking" that Becattini would not have born out without the studying of the development in Tuscany (Becattini, 1969 and 1975) and the history of Prato (1979‐1997) (Becattini, 1997). In Becattini’s view − as in Alfred Marshall − the "observation of facts" and the "theoretical thinking" complement each other, because: (1) facts by themselves are silent; but (2) theory alone is a mere criticism. These three concepts of "industrial district" are not mutually exclusive, rather are synergistic. Through these ID concepts Becattini concretises the Marshall’s statement that Economics is more important as a part of the study of man in society than as a study of wealth (Marshall, 1920a, p. 1).

6. Conclusions

The title of our paper is a cast of the Torsten Hägerstrand’s presidential address to the 9th ERSA Congress (Copenhagen 1969), later published in the Papers of the Association under the title: "What about people in Regional Science?" (Hägerstrand, 1970). In that paper Hägerstrand distanced himself from the Regional Science as a discipline about locations. He stated that «Regional Science defines itself as a social science, thus its assumptions about people are also of scientific relevance» (Hägerstrand, 1970, p. 7). The authors of the present paper think the same about the industrial district(s): ID is about people, not firms. The "cluster" is about firms, missing the place (local community) as a focal element in its definition (Sforzi, 2008).

References

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Becattini, G. (1969), a cura di: Lo sviluppo economico della Toscana: un’ipotesi di lavoro, il Ponte, Firenze. Becattini, G. (1975), a cura di: Lo sviluppo economico della Toscana, con particolare riguardo all’industrializzazione leggera, Guaraldi, Firenze. Becattini, G. (1979): "Dal settore industriale al distretto industriale. Alcune considerazioni sull’unità d’indagine dell’economia industriale", Rivista di economia e politica industriale, a. V, n. 1, p. 7‐ 21. Becattini, G. (1987): "Introduzione. Il distretto industriale marshalliano: cronaca di un ritrovamento", in G. Becattini, a cura di, Mercato e forze locali: il distretto industriale, Bologna, il Mulino, p. 7‐34. Becattini, G. (1989): "Riflessioni sul distretto industriale marshalliano come concetto socio‐economico", Stato e mercato, n. 25, p. 111‐128. Becattini, G. (1995), a cura di: Prato, storia di una città, 4. Il distretto industriale (1943‐1993), Comune di Prato‐Le Monnier, Firenze. Boix, R. (2009): "The empirical evidence of industrial district in Spain", in G. Becattini, M. Bellandi and L. De Propris (eds.), A Handbook of Industrial Districts, Cheltenham, Edward Elgar, p. 342‐359. De Propris, L. (2009): "The empirical evidence of industrial district in Great Britain", in G. Becattini, M. Bellandi and L. De Propris (eds.), A Handbook of Industrial Districts, Cheltenham, Edward Elgar, p. 360‐ 380. Hägerstrand, T. (1970): "What about people in Regional Science?", Papers of the Regional Science Association, vol. 24, n. 1, p. 7‐21. Harvey, D. (1984): "On the history and present condition of geography: an historical materialist Manifesto", The Professional Geographer, vol. 36, n. 1, p. 1‐11. Hoover, M.E. (1971): An Introduction to Regional Economics, 2nd edition, Knopf, New York. Isard, W. (1956): Location and Space‐Economy. A General Theory Relating to Industrial Location, Market Areas, Land Use, Trade, and Urban Structure, The Technology Press of Massachusetts Institute of Technology and John Wiley & Sons, Inc., New York. Markusen, A. (1996): "Sticky places in slippery space: A typology of industrial districts", Economic Geography, vol. 72, n. 3, p. 293‐313. Marshall, A. (1920a): Principles of Economics, MacMillan, London, Reprint 1988, 8th edition.

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