The Economic Geography of Innovation

This critical addition to the growing literature on innovation contains extensive analyses of the institutional and spatial aspects of innovation. Written by leading scholars in the fields of economic geography, innovation studies, planning, and technology policy, the fourteen chapters cover conceptual and measurement issues in innovation and relevant technology policies. The contributors examine how different institutional factors facilitate or hamper the flows of information and knowledge within and across firms, regions, and nations. In particular, they provide insights into the roles of important institutions, such as gender and culture, which are often neglected in the innovation literature, and demonstrate the key role that geography plays in the innovation process. They also discuss institutions and policy measures that support entrepreneurship and cluster development. The result is an excellent comparative picture of the institutional factors underlying innovation systems across the globe.

K AREN R. P OLENSKE is Professor of Regional Political Economy and Planning in the Department of Urban Studies and Planning at Massachusetts Institute of Technology.

The Economic Geography
of Innovation

Edited by

Karen R. Polenske

CAMBRIDGE UNIVERSITY PRESS
Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo

Cambridge University Press
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Published in the United States of America by Cambridge University Press, New York

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First published 2007

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Contents

Figures

Tables

Notes on contributors

ESBEN S. ANDERSEN is Associate Professor at the Department of Business Studies, Aalborg University, Denmark. His PhD is in evolutionary economics, and his research interests range from development of agent-based simulation models of multi-sectoral economic evolution to the history of the economic analyses of evolutionary processes. He is engaged in the Danish Research Unit for Industrial Dynamics (DRUID) and in the development of the European Doctoral Training Program on the Economics of Technological and Institutional Change, in both cases since their start in 1995. He has written the book Evolutionary Economics: Post-Schumpeterian Contributions, as well as articles on economic organization, innovation theory, evolutionary modeling, and the history of economic thought.

CHRISTIE BAXTER is Principal Research Scientist, Department of Urban Studies and Planning, Massachusetts Institute of Technology (MIT). In her research and consultancies, she explores how governments and nonprofit institutions participate in major real estate projects. She directed, with Bernard J. Frieden, a nationwide study of how local communities use former military bases to achieve economic development goals. From 1992 to 1998 she directed the MIT Project on Social Investing, which sought to increase private and nonprofit investment in beneficial capital and business projects. Previous research has examined major infrastructure initiatives, downtown redevelopment, and innovative contracts for public building development. She has authored Program-Related Investing: A Technical Manual for Foundations (1996) and a number of studies, papers, and book chapters about public-purpose real estate development.

ANNE P. CARTER is Fred C. Hecht Professor of Economics Emerita at Brandeis University. She is a former Dean of the Faculty at Brandeis, Founding President of the International Input-Output Association, and a Fellow of the American Association for the Advancement of Science. Her research continues to focus on structural change in an input-output context and the broad challenge of measuring economic variables in the evolving economy.

BENT DALUM is Associate Professor in Economics at Aalborg University, and Head of the Socio-Economic Implications of Telecommunications (SEIT) research group at the Center for TeleInFrastruktur at Aalborg University. His research focuses on regional innovation systems and industrial economics; technology; structural competitiveness and international trade; and national systems of innovation and industrial policy.

MARYANN P. FELDMAN is Jeffrey S. Skoll Chair, Innovation and Entrepreneurship, and Professor of Business Economics at Rotman School of Management, University of Toronto. She is the author of some thirty-five articles on economic geography in related academic journals, and of books including the Geography of Innovation and Innovation Policy for the Knowledge-Based Economy (with Al Link). Her current research focuses on the issues of innovation and technological change: in particular, the process of innovation and the determinants of technological change and economic growth.

BERNARD FINGLETON is Reader in Geographical Economics at Cambridge University. He holds PhDs in Geography and in Economics, with research interests in spatial econometrics, regional productivity growth, the “new economic geography,” urban economics, cluster analysis, simulation and dynamics, and urban, regional, and spatial economic development. He is Director of Postgraduate Studies in the Department of Land Economy, and Editor of Spatial Economic Analysis. He has been a consultant and research proposal evaluator for the European Commission and UK government departments.

MERIC S. GERTLER is Professor of Geography and Planning, Goldring Chair in Canadian Studies, and co-director of the Program on Globalization and Regional Innovation Systems at the University of Toronto. He also co-directs the Innovation Systems Research Network (ISRN), a national network of scholars in Canada funded by a $2.5 million grant (2005–2010) from the Social Sciences and Humanities Research Council to study “The Social Dynamics of Economic Performance: Innovation and Creativity in City-Regions.” His publications include Manufacturing Culture: The Institutional Geography of Industrial Practice, Innovation and Social Learning (with David Wolfe), and The Oxford Handbook of Economic Geography (with Gordon Clark and Maryann P. Feldman).

AMY GLASMEIER is E. Willard Miller Professor of Economic Geography in the Department of Geography, Pennsylvania State University. She is also Editor of Economic Geography and Director of the Penn State Environmental Inquiry Minor. She has published three books on international industrial and economic development, including High-Tech America, High-Tech Potential: Economic Development in Rural America, and From Combines to Computers: Rural Services Development in the Age of Information Technology, and more than forty scholarly articles. Her poverty research website is http://www.povertyinamerica.psu.edu/.

MIA GRAY is University Lecturer in the Department of Geography and Fellow of Girton College at the University of Cambridge. Her current work includes a socially oriented analysis of occupational and job segregation; research on skill formation, diffusion of knowledge, and innovation in high-tech labor markets; and investigation of new types of labor organizing in low-paid service sector occupations.

DANILO C. IGLIORI is Affiliated Lecturer in the Department of Land Economy, University of Cambridge and Assistant Professor in the Department of Economics, University of So Paulo. His interests are in applied economics, with focus on spatial models. His research topics include spatial clustering, innovation, economic development, urban economics, land use, environmental problems, and spatial econometrics.

AL JAMES is an Assistant Lecturer in the Department of Geography at the University of Cambridge, and a Fellow of Fitzwilliam College. He is an economic geographer with ongoing research interests in cultural economy, the geographical foundations of regional economic development, and geographies of work and workers in the New Economy.

BJöRN JOHNSON is an Associate Professor and Reader in Economics and connected to the economic studies program, Aalborg University, Aalborg st, Denmark. His earlier research dealt with regional aspects of consumer behavior, planned economies, comparative economic systems, and comparative analysis of contemporary strategies in economic policy. His current research is in the field of institutional economics and focuses on the relations between technical and institutional change.

ALICE LAM is Professor of Organization Studies at the School of Management, Royal Holloway University of London. Her current research covers the relationship between organizational forms, knowledge creation, and societal institutions. She has published in a wide range of academic journals including Organization Studies, Journal of Management Studies, and Industrial Relations.

LENA LAVINAS is Professor, Institute of Economics, Federal University of Rio de Janeiro. She specializes in Social Policies at the International Labor Organization (ILO) in Geneva (Switzerland) and teaches about labor, poverty, and other social issues at the Universidade Federal do Rio de Janeiro – Rio de Janeiro Federal University (UFRJ). She also has published on social policies with the Instituto de Pesquisa Econômica Aplicada – Applied Economic Research Institute (IPEA) in Brazil.

BENGT- Åake lundvall is Professor of Economics in the Department of Business Studies at Aalborg Uiversity, and Special Term Professor in the School of Economics and Management at Tsinghua University. His current research is on the economics of knowledge and innovation in relation to economic development. He is former Deputy Director of the OECD Directorate for Science, Technology, and Industry and initiator and co-ordinator of the global network of innovation scholars Globelics (www.globelics.org).

ALEJANDRO MERCADO-CELIS has a PhD in Urban Planning from the University of California in Los Angeles and a masters degree in regional development from Colegio de la Frontera Norte, Tijuana, Baja California. He is a Professor at the Center for North America Research in the Universidad Nacional Autónoma de México, México City, DF, México. He conducts research on comparative studies of Canadian, US, and Mexican regional restructuring.

BARRY MOORE is a Fellow in Economics in Downing College at the University of Cambridge, University Reader in Economics in the Department of Land Economy, and Senior Research Associate in the Centre of Business Research, Judge Business School, at the University of Cambridge. He has been a special advisor to the OECD, and consultant to the European Commission and different government departments in the United Kingdom. His current research interests include regional economic development and policy evaluation, the competitiveness of cities and the city system, high-technology clusters and collective learning, including the role of research institutes and universities.

RAAKHI ODEDRA has a BA in Economics from the University of Cambridge and an MSc in Economics for Development from the University of Oxford. She has completed research for the Scottish Executive on the social care labor market. Currently, she is posted in the Ministry of Education, Rwanda, on an Overseas Development Institute fellowship.

KAREN R. POLENSKE is Professor of Regional Political Economy and Planning and Head of the International Development and Regional Planning (IDRP) group in the Department of Urban Studies and Planning at the Massachusetts Institute of Technology (MIT). She is the author or the editor of seven books including the Technology – Energy – Environment – Health (TEEH) Chain in China: A Case Study of Cokemaking in Shanxi Province, and Chinese Economic Planning and Input-Output Analysis (co-edited with Chen Xikang). She has also published numerous articles in key economic, energy, environmental, and planning journals. Her current research includes an analysis of cokemaking and steelmaking technology options in the People’s Republic of China (PRC, China); socioeconomic impacts of the silent aircraft initiative in the United Kingdom; economic growth in distressed counties in Appalachia; spatial dispersion of innovation; and land recycling in China.

APIWAT RATANAWARAHA is a doctoral candidate in the International Development and Regional Planning (IDRP) group at the Massachusetts Institute of Technology (MIT), in the Department of Urban Studies and Planning. He is also a Doctoral Fellow at the MIT Industrial Performance Center and a Research Fellow in the Science, Technology, and Globalization Group of the Science, Technology, and Public Policy Program at Harvard University’s Belfer Center for Science and International Affairs. His current research covers topics on technical standards, international trade, and technological catch-up by latecomer countries.

ANNALEE SAXENIAN is Dean and Professor in the School of Information Management and Systems (SIMS) and Professor in the Department of City and Regional Planning at the University of California, Berkeley. As an expert on economic development in information technology, she has written extensively on the social and economic organization of production in technology regions such as Silicon Valley. Her current research explores how immigrant engineers and scientists have transferred technology entrepreneurship to regions in China, India, and Taiwan. Her publications include Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Silicon Valley’s New Immigrant Entrepreneurs, and Local and Global Networks of Immigrant Professionals in Silicon Valley.

EDWARD S. STEINFELD is Associate Professor of Political Science at the Massachusetts Institute of Technology (MIT). Professor Steinfeld, a China specialist, focuses on the political economy of reform in socialist and post-socialist systems. Much of his research has focused on the reform of state-owned industry and the transformation of the financial sector in China. His current work focuses on decisionmaking in the Chinese energy sector. Steinfeld’s publications include the book Forging Reform in China and Financial Sector Reform in China (co-edited with Yasheng Huang and Anthony Saich).

MICHAEL STORPER is Professor of Regional and International Development in the School of Public Affairs at the University of California – Los Angeles, Professor of Economic Sociology at Institut d’Etudes Politiques de Paris, and Professor of Economic Geography at the London School of Economics and Political Science (LSE). His most recent books are Worlds of Production: The Action Frameworks of the Economy (with Robert Salais), The Regional World: Territorial Development in a Global Economy, and Latecomers in the Global Economy. He has been a consultant with the OECD, the European Union, and the Brazilian government.

PETER TYLER is University Professor of Urban and Regional Economics in the Department of Land Economy at the University of Cambridge. He has been working on issues of local labor markets; evaluation of government policies; economic restructuring; and business performance – small and medium-sized enterprises (SMEs). His recent publications include Enterprising Places: Sustaining Competitive Locations for Knowledge-Based Business (with several co-authors), and Developing the Rural Dimension of Business Support Policy (with two co-authors).

Acknowledgments

Working with such distinguished scholars from many parts of the world has been an exciting and challenging experience. The basic conception for a seminar that enabled me to have the contributors to this book prepare their papers arose from a graduate seminar I gave to a few students the two years previous to the official “Geography of Innovation” Special Program on Urban and Regional Studies (SPURS) seminar. At the initial graduate seminar, a small group of talented students helped me decide on what was missing from the innovation literature and who might be invited to give a talk to help fill the gap. The graduate students in the initial seminar included Genevieve Connors, who worked with me as an RA/TA, Criseida Navarro-Diaz, Smita Srinivas, and Christine Erickson. I thank each of them for the intellectual challenges they posed throughout the year. In the Fall of 2003, I gave the seminar as part of the SPURS seminar series. I thank Christine Erickson, the teaching assistant, Nimfa deLeon, SPURS administration, and especially John deMonchaux, SPURS director, and Lawrence S. Vale, department head, for their support during the summer as I prepared for the seminar as well as during the seminar itself.

When I moderated the Fall semester SPURS seminar, I had most of the speakers not only give a talk to the SPURS fellows, but also meet with a group of ten graduate students, most of whom were PhDs. Just when I thought I knew most of the current literature, one of these bright energetic students would find still another book or article that would shed new light on our discussions. The students were so motivated that I never had to assign anyone to do the reading for a specific day, because all of them did it and were prepared to discuss the issues covered in a critical, insightful way. I can truly say that this is the best seminar I ever taught at the MIT since coming in 1972. That exuberant feeling was evidently shared by the students who gave the seminar unusually high ratings in the end-of-term evaluation, and they requested that we continue to explore the topic of spatial concentration/dispersion in the following Spring term. Several of the students have used the papers they did for this seminar to jump-start them on dissertation research. I am eternally grateful for the unique contribution each and every graduate participant made, including: Alberto Blanco, Liou Cao, Christine Erickson, Myoung-gu Kang, Criseida Navarro-Dias, Apiwat Ratanawarada, Elizabeth Reynolds, Michael Sable, Ryan Tam, and Christopher Zegras.

When the Cambridge-MIT Institute (CMI) agreed to fund the seminar series and the subsequent publication of this book of papers compiled from the lectures, I decided to hire a graduate student to help me review and edit the papers given by the speakers. I selected Apiwat Ratanawarada, and we soon became more like colleagues than professor – student. He is highly sought after to work with faculty in MIT, so that I was delighted that he agreed to work with me for a year on the reading and editing of the papers. He helped me provide the authors with an excellent critique of their papers and suggestions for revising them. The work we put into this stage of manuscript preparation paid off when Cambridge University Press agreed to publish the manuscript as a book. I deeply thank Apiwat for all his efforts in relation to the editing of the chapters, but also for the intellectually demanding questions he kept asking.

I deeply thank each of the authors who presented interesting lectures and have written exciting chapters. I had each do several rounds of revisions, but each person kept his/her sense of humor as I asked for one more change, often on the eve of a major holiday. You were a wonderful, supportive set of colleagues who have helped expand my own knowledge of innovation greatly. This book is indeed a fascinating contribution to the literature because of the knowledge you have shared with the world.

After Cambridge University Press agreed to publish the book, I needed to get the papers into a form that followed their guidelines, which is not an inconsequential task. Since October 2005, I have been assisted by three skilled people. Francis Diaz did all the reference checks and rearranging the references into the style required by the Press. This was a challenging job, partly because authors each initially used their own style, so that, in reality, we had fourteen different ways of doing the references. Jacob Wegmann assisted me in formatting the papers to the Press guidelines- and, in the process, he also did some excellent editing of each paper. Li Xin did an outstanding job of putting all the papers into a single document and doing final checks, with some assistance by Chen Zhiyu on the final day. I especially appreciate their willingness to take time during the busy winter holiday season to do this work.

Funding for the SPURS seminar, the travel and honoraria for the speakers, and for supporting for the student assistants, came from CMI and from the Department of Urban Studies and Planning (DUSP). I thank John deMonchaux (SPURS), Scott Shurtleff and James H. Keller (CMI), and Bish Sanyal and Larry J. Vale (DUSP) for seeing that sufficient funding was provided to me from the three academic divisions that they represent. Finally, I am required to say the following, but I do appreciate the support from the UK government for the CMI project. In this case, I believe they have received real value for the funds, thanks perhaps to all the people mentioned above, plus all the talented authors. I especially thank the staff at Cambridge University Press for their careful work on this manuscript. Chris Harrison, Publishing Director (Social Sciences), kindly gave me strong encouragement and important information on the publication protocols during the initial stages of the review and editing; Dr. Lynn Dunlop, then Assistant Editor, Economics and Business, Joanna Breeze, Production Editor, and her colleague Jodie Barnes responded quickly to my e-mails and kept their sense of humor as I had to delay longer than anticipated in sending the final product, Barbara Docherty, copy-editor, did an excellent job of editing. Overall, these and other CUP employees helped make this a superb publication.

This publication is an output from a research project funded by CMI. CMI is funded in part by the UK government. The research was carried out for CMI by the MIT. CMI can accept no responsibility for any information provided or views expressed.

Abstracts

part I Concepts and measurements in innovation

1     Introduction

Karen R. Polenske

Innovation occurs in a particular place at a particular time. One recurring theme throughout this book is how technology, innovation, and alternative means of transferring knowledge are changing spatial relationships among firms, hence the title of the book, The Economic Geography of Innovation. I discuss in this chapter some of the reasons this book is unique among the many publications on innovation. My main reason for collecting this set of contributions is to highlight the fact that innovation is done in space, whereas most innovation studies are aspatial, with the analyst focusing on the type of innovation done, not where it is done and on how knowledge is transferred depending upon whether it is codified or tacit knowledge. I end the chapter with a review of the remaining thirteen chapters.

2      Measurement of the clustering and dispersion of innovation

Anne P. Carter

In modern economics, we try to explain levels of output and of input, prices, and incomes in quantitative terms. Measurement is thus prerequisite to scientific progress in this field. Innovation generally involves qualitative change, and therefore complicates the problem of measuring economic variables. In this chapter, I explain the obstacles that innovation poses to measurement, and therefore to quantification, in economics. I review the “double-inversion” strategy proposed by Leontief to represent the most rapidly changing sectoral outputs in terms of their more standard inputs. Because change affects virtually all inputs and outputs, this strategy proved impractical, and Leontief recognized that input-output analysis, and indeed most analysis implemented with the national accounts, could be valid only in the short or medium term.

Contemporary economists have used proxies and other creative strategies to study innovation, circumventing the essential difficulties of measuring qualitative change. In this chapter, I provide an overview of these strategies and their contribution to our understanding of how a rapidly evolving economy works. However, the problem of measuring the standard economic variables in the face of rapid innovation remains unsolved. Is it possible that today’s quantitative economic variables are themselves becoming obsolete?

3     Measuring the geography of innovation: a literature review

Apiwat Ratanawaraha and Karen R. Polenske

We focus in this chapter on the measurement issues arising from analysts using diverse definitions and approaches to study the distributive patterns of innovation, none of which is ideal. Through a review of innovation literature, we identify the data and indicators commonly used to assess innovation and its distribution, as well as the strengths and weaknesses of such measures. We conclude that the available measures are inadequate not only because of limited data availability, but also because analysts have not sufficiently defined and conceptualized theoretical methods to conduct the measurements, nor have they considered the trade-offs between relatively simple indicators and more comprehensive means of conducting measurements of innovation.

4      Employment growth and clusters dynamics of creative industries in Great Britain

Bernard Fingleton, Danilo C. Igliori, Barry Moore, and Raakhi Odedra

In this chapter, we test some of the main hypotheses about the importance of horizontal clusters for employment growth in small firms. We adopt a simple concept of clustering to examine its impact on SME’s employment growth in creative industries, using evidence for Great Britain, 1991–2000. In the main section of the chapter, we estimate spatial econometric models, controlling for supply- and demand-side conditions in order to isolate the effect of initial cluster intensity. One important aspect of the chapter is the existence of a declustering mechanism due to congestion effects. The estimated spatial econometric model provides evidence supporting the presence of positive and negative externalities associated with different levels of cluster intensity, with respect to employment growth in the creative industries. It is also apparent that external effects spill over across area boundaries. These effects point to the importance of local spin-offs and knowledge flows creating technological externalities that transgress area boundaries. These findings reinforce the claim by other analysts that agglomerations play an important role in economic performance. However, they also indicate that the positive effects of cluster intensity have upper thresholds, and we can have the opposite situation where negative externalities predominate and employment is destroyed.

Part II Institutional and spatial aspects of information and knowledge flows

5      Tacit knowledge in production systems: how important is geography?

Meric S. Gertler

Within economic geography and industrial economics, interest in the concept of tacit knowledge has grown steadily in recent years. Nelson and Winter stimulated this interest in the work of Michael Polanyi by using the concept of tacit knowledge to inform their analysis of the routines and evolutionary dynamics of technological change. Recently, the concept has received even closer scrutiny. Analysts argue whether or not geographical proximity is a precondition for the effective transmission of tacit knowledge between economic actors. In this chapter, I seek to bring clarity to this debate by exploring an important, but hitherto neglected, aspect of tacit knowledge in the workplace – namely, its institutional underpinnings. While much of the innovation literature focuses on a single question: can tacit knowledge be effectively shared over long distances?, I argue that this issue cannot be properly analyzed without considering a prior question: how is tacit knowledge produced, and what role do institutional frameworks play in this process? I explore these arguments through the use of a case study examining attempts to transfer tacit production knowledge between geographically distant partners.

I revisit Michael Polanyi’s original conception of tacit knowledge, showing it to be limited by its experiential and cognitive emphasis, with insufficient attention devoted to the role and institutional foundations of social context. Alternatively, I argue that analysts cannot sort out the geography of tacit knowledge (i.e. whether, or under what conditions, it can be transmitted over long distances) without inquiring into the foundations of context and culture and the institutional underpinnings of economic activity, taking the work of another Polanyi (Karl Polanyi) as the logical starting point.

6      The self-aware firm: information needs, acquisition strategies, and utilization prospects

Amy Glasmeier

Debates about the extent to which regions are differentially conditioned to foster innovation move in two divergent directions. The first set of analysts takes a normative approach in suggesting what is required of regions and firms to be competitive, innovative, and resilient. Their perspective draws largely on case studies of “successful” regions or of firms where learning either occurs or is in some way suboptimal. The second set of analysts takes a perspective with a positive approach to firm learning and investigates the practice of information acquisition, knowledge creation, and behavioral change in firms. While the first analysts suggest that firms can and do act deliberately and with forethought, the second, survey-based, analysts suggest that firms are fallible, narrowly focused, and myopic. How do we reconcile these two apparently divergent perspectives?

In this chapter, I affirm the ways in which firms acquire information and the degree to which they act on it. These results demonstrate that firms by and large minimize their search processes for information. Further, having acquired it, they fail to act on this information in a deliberate fashion. These findings appear invariant across locations, suggesting that decisionmakers who design policies to enhance firm-level innovation and regional competitiveness should be mindful of the actual behavior of firms as they design public-sector programs. I provide a broad representative assessment of the capabilities of SMEs to acquire and utilize strategic business and technical information and speculate about the stages of being firms can and do reflect that coincide with a heightened ability to acquire, translate, and internalize strategic information.

7      Theorizing the gendered institutional bases of innovative regional economies

Mia Gray and Al James

Although social institutions are widely regarded as key determinants of success in high-growth regional economies, the regional learning and innovation literature remains largely premised on a series of assumptions regarding work patterns and social interactions among entrepreneurs and science oriented employees that are gender-blind. Focusing on the industrial agglomeration of ICT firms in Cambridge, England, we examine the role that gender plays in constructing distinctive patterns of work and sociocultural interaction among male and female workers within this so-called “blueprint” regional economy, and how female workers’ abilities to contribute to key processes widely theorized to positively underpin learning and innovation at the levels of the firm and the region are constrained relative to their male colleagues. We also discuss the wider implications of these findings for socially inclusive regional economic development strategies.

8      Multinationals and transnational social space for learning: knowledge creation and transfer through global R&D networks

Alice Lam

In this chapter, I contrast the experiences of four MNCs, headquartered in two countries, Japan and the United States, in order to evaluate the influence of national patterns of organization and innovation on global R&D networks. I consider the comparative effectiveness of the different models of R&D organization in co-ordinating globally dispersed knowledge creation. I find a substantial amount of variation in the degree to which the firms succeed in attaining a high degree of “embeddedness” in the innovation networks of the host country, in this case the United Kingdom, where their overseas research facilities are located. Among other factors, I find that the degree to which a corporation’s R&D network is distributed rather than hierarchical bears significantly upon the degree to which it successfully achieves the goal of fostering transnational learning.

9      Brain circulation and regional innovation: The Silicon Valley–Hsinchu–Shanghai triangle

AnnaLee Saxenian

A highly mobile community of Chinese engineers and entrepreneurs with work experience and connections in Silicon Valley is transferring know-how and skill between distant regional economies faster and more flexibly than most MNCs and transforming the geography of IT production. The focus of the chapter is on the relocation of semiconductor design and manufacturing from its original concentration in the United States and Japan, first to Taiwan and subsequently to Shanghai, in the last two decades. A similar process of “brain circulation” has reshaped the spatial distribution of other IT sectors.

Part III Institutions and innovation systems

10      National systems of production, innovation, and competence building

Bengt-ke Lundvall, Björn Johnson, Esben S. Andersen, and Bent Dalum

The authors have worked on innovation systems for almost two decades, and this chapter is an attempt to take stock. Section reflects on the innovation system concept in the light of economic geography and it has been authored specifically for this volume, while the following sections form a shortened and slightly revised version of a paper published in Research Policy (Lundvall et al. 2002). In section , we reflect upon the emergence and fairly rapid diffusion of the concept of “national system of innovation,” as well as related concepts. In section , we describe how the Aalborg version of the concept evolved by a combination of ideas that moved from production structure towards including all elements and relationships contributing to innovation and competence building. In section , we discuss the challenges involved in both a theoretical deepening of the concept and in moving toward a broader approach.

11      Perspectives on entrepreneurship and cluster formation: biotechnology in the US Capitol region

Maryann P. Feldman

The US Capitol region ranks as one of the important biotechnology (biotech) clusters in the United States. This chapter documents the highlights of the historical development of the cluster. The Capitol region biotech cluster, in essence, is the result of three reinforcing sets of factors: pre-existing resources, entrepreneurship, and the incentives and infrastructure provided by government. Because of significant investments in science and technology (S&T), the region was prepared to capitalize on technological opportunities in biotechnology as well as institutional policy changes that facilitated technology-based entrepreneurship, which partially contributed to its rise in the United States from twelfth place in 1975 to fourth place in 1999 in the number of biotech patent applications.

12      Facilitating enterprising places: the role of intermediaries in the United States and United Kingdom

Christie Baxter and Peter Tyler

Regions around the world want the economic benefits associated with high-technology companies. But creating and nurturing such centers, what we call “enterprising places,” is a complex process. Even when a place has the essential resources – an excellent university or research center, facilities for companies, and an educated workforce – it is not clear how to sustain a center from them. The efforts of policymakers to do just that comprise a rich source of experimental evidence. We examine that evidence here, focusing on the kinds of organizations regional leaders have used to facilitate the development of enterprising places in Eastern Massachusetts and Scotland’s Central Belt.

We find that intermediaries, organizations whose structure and mission was to connect different sectors, were central in the design and implementation of development policies and programs in the two regions. In addition to their programmatic missions, intermediaries enabled entrepreneurship, leadership, innovation, and a continuity of purpose during periods of political and economic change. These intermediaries also changed over time, reflecting evolving theories of economic development and the geographic, cultural, and political environment of the regions in which they were embedded. We find that the differences between intermediaries in Massachusetts and Scotland, which reflect national differences in institutional structure, have affected the kinds of partnerships and outcomes these intermediaries have achieved. Such differences could contribute to the greater vitality of centers in the United States relative to those in the United Kingdom.

13       Innovation, integration, and technology upgrading in contemporary Chinese industry

Edward S. Steinfeld

China’s extraordinary economic transformation over the past two decades has been linked inextricably with the interaction between the depth of the domestic institutional reform and the degree of Chinese producers’ engagement in the global economy. Even so, the competitiveness and sustainability of China’s firms in the global market are still under debate. I argue that Chinese firms are structured in a fashion that allows them to compete extremely effectively on the basis of low cost in relatively low-value manufacturing activities, although this structure does not easily allow them to move upward in the production chain into more innovative, higher-return activities. In this chapter, I examine the limits and sustainability of the “virtuous interaction” between Chinese firms’ engagement in the global competition and governmental reform style, state capacity, as well as industrial policy. I examine both whether Chinese firms can develop organizationally the sort of innovative capacities that lead to long-term competitiveness, and what the obstacles to date have been.

14      Society, community, and development: a tale of two regions

Michael Storper, Lena Lavinas, and Alejandro Mercado-Célis

Contemporary social science remains quite divided about the type of co-ordination that allows some groups of agents to carry out successful economic development and which distinguishes them from cases of failure. In some cases, it is said to be traditional or nonmarket forms of co-ordination, such as family, networks, or shared traditions: these are “communitarian” sources of organization. In most mainstream economics, however, the opposite is said to be necessary: anonymous and transparent rules of the market, property rights, and contracts. These are “societal” forces. For example, for some analysts, Silicon Valley is a case of community, while for others it is due to appropriate societal forces. The same cleavage can be found in rival interpretations of the success of the “Asian Tigers,” the industrial clusters of the “Third Italy,” or any of a host of other cases. A more robust explanation shows how both communitarian and societal forces act as checks and balances on one another, all the while each creating specific, but different, sources of efficiency in the economy. We illustrate this view via a study in contrasts, between a failed case of low-technology economic development in the Brazilian Northeast, and a success story in the state of Jalisco, Mexico.

Abbreviations and acronyms