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«Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann-Wolfgang Goethe-Universität Frankfurt am ...»

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Regional networks often consist of a mixture of different sectors (depending on its structure, see below), a diversity of linked enterprises and a dense net of local supporting institutions that foster innovation, knowledge transfer and co-operation such as associations, banks and local government. An industrial district as a specific kind of regional network typically only consists of one sector. Regional networks in general are characterized by a high level of trust and strong identification with the region and thus a social embeddedness of companies. Regional networks are polycentric organized structures within a geographically bounded area, consisting of many SMEs instead of one central authority.247 However, within regional networks the chance of getting locked-in can have serious consequences for the entire region. This might happen when strong ties overpower weak ties and the network isolates from the outside. Weak ties are needed to stay open to new influences which ultimately will be needed to stay innovative. Granovetter argues that strong ties are only helpful with uncritical, incremental innovations but that radical new ideas are mostly received over weak ties at the periphery of a network. The same problem may arise with a too high level of trust that emphasizes well-tried problem solving strategies.248 Regional networks can take on different forms, such as innovative milieus, industrial districts or clusters, which will be analyzed in detail below.

Elsner, 2000, p. 413, 415, Dörsam and Icks, 1997, p. 10.

Walter, 2004, p. 108ff., Dörsam and Icks, 1997, p. 8f.

Bathelt and Glückler, 2000, p. 172, Granovetter, 1973, p. 1367f., Ledeneva, 2005, p. 8f., Ramazotti, 2010, p. 960.

Excursus: embeddedness and trust Embeddedness as a concept has been developed by Karl Polanyi in this book The Great Transformation.249 However, Polanyi himself, although coining the term, never used it frequently or even defined it thoroughly. He mentioned it in the chapter ―Evolution of the Market Pattern‖ of The Great Transformation, but besides that he never attached great importance to the term.250 He defined it as anchoring of economic institutions (first and foremost the market, but also other forms of exchange like reciprocity and redistribution) into social regulations that confine their functioning. Also, Polanyi regarded embeddedness not only as theoretical term but also a political and social one which makes the term more than merely related to the economy but to the entire system as such.251 Thus, the significance of the concept derives from the reception of the book rather than from Polanyi himself. The term was taken over by New Economic Sociology when social anchoring of economic configurations such as the industrial district seemed to contradict the mainstream economic theory. It has been made famous by Mark Granovetter in a ―founding manifesto‖.252 However, Granovetter‘s use of the term differs from that of Polanyi. Whereas the latter strives towards an institutional analysis, Granovetter develops a structural network approach which limits the analysis, for example of markets, to a single aspect. This ―leads to a neglect of the social content underlying the observed structure‖ which ultimately fails to explain the structure of specific networks and neglects ―Polanyi‘s concern with the stability of social order‖.253 Granovetter developed his embeddedness theory essentially to build up an approach in opposition to the NIE around Williamson who declared network relations as weak and temporary (see also chapter 2). The latter ―explains existence of economic institution merely by functions it performs for the economic system‖, but fails ―to recognize the importance of concrete personal relations and networks of relations‖.254 Granovetter argues against this atomistic, functionalistic concept of economic action that happens without being embedded in a context. In contrast, he argues that actors are embedded into systems of Polanyi, 1944.

In Polanyi, 1944 Polanyi mentions the term twice: first in the famous quote ―Instead of economy being embedded in social relations, social relations are embedded in the economic system‖, p. 57; and a few pages later: ―Acts of barter are here usually embedded in long-range relations implying trust and confidence, a situation which tends to obliterate the bilateral character of the transaction‖, p. 61.

Beckert, 2007b, p. 7f.

Beckert, 2007b, p. 5f., Granovetter, 1985. Ever since ―[h]ardly any article associated with the new economic sociology fails to mention ‗embeddedness‘ as the core concept indicating a sociological approach to the economy. Few economic sociologists would disagree with the statement: ‗We are all Polanyians now‘‖.

Beckert, 2007b, p. 7.

Beckert, 2007b, p. 9.

Coleman, 1990, p. 302.

social relations and are neither undersocialized and only focused on profit maximization nor oversocialized and only acting under the impression of norms, but rather relational and embedded. Embeddedness marks the quality of a relationship between persons which is not only opportunistic. Social relationships are the foundation for trust which is built up by time and experience. Thus, the concept of embeddedness implies that economic relations are contextual and dependent on experience. Social routines and institutions give trust that facilitates decisions and the conclusion of contracts will not fail due to uncertainty through opportunism. Based on that, long-term network relations are constructed.255 The embeddedness approach lies in the middle between the undersocialized notion of impersonal, institutional arrangements and the oversocialized one of generalized morality and scrutinizes concrete forms of social relations.256 However, embeddedness consists of relational and structural dimensions. The relational embeddedness characterizes the quality of a relation between two actors that is based on mutual trust. Structural embeddedness means the quality of connections between several actors. The action of two actors is in this view dependent on the context of the ties to the other individuals as well as their reputation within the network.257 Trust also creates and enforces norms and together with embeddedness adds social and organizational connections to the analysis of economic systems. However, embeddedness is ―not merely […] a structure that springs in to fulfill economic function but […is] a structure with history and continuity that give it an independent impact on the functioning of the system‖.258 Trust is unlike other resources never diminished by use, to the contrary.259 However, distrust ―is very difficult to invalidate through experience…once distrust has set in it soon becomes impossible to know if it was ever in fact justified, for it has the capacity to be self-fulfilling‖.260 Trust is the central mechanism for coordinating networks. The ability to trust, so-called generalized trust, is the foundation for situational trust. It is also the foundation of reciprocity and is a main mechanism for integration for a network in that it reduces the complexity and need for co-ordination within networks. Vice versa, reciprocity again engenders trust.

Powell even claims that trust is more efficient and economical than ―prediction, authority, Granovetter, 1985, Bathelt and Glückler, 2000, p. 170f.

Granovetter, 1985, p. 493.

Bathelt and Glückler, 2000, p. 170f.

Coleman, 1990, p. 302.

Putnam; Leonardi and Nanetti, 1993, p. 169, Dasgupta, 1988a, p. 56.

Gambetta, 1988a, p. 234.

or bargaining‖.261 Trust is crucial for the stability and capacity for action of networks and is necessarily connected to the reputation of a network member. Reputation, together with reliability, loyalty and trust can only develop in long-term relations because they strongly depend on repeated experience. Trust reinforces the durability of reciprocal connections and reduces opportunist behavior. 262 Trust can take on an informal and a formal form. Formal trust means that by interacting with another person, both believe that the other will obey the accepted rules and convention of the encounter. Informal trust depends on the degree of knowledge of another person in different situations and that this person is dependable even in stressful circumstances.

The latter form of trust needs time to develop.263 Trust can be conceptualized in different ways, for example in the distinction of trust as familiarity or confidence in the case of system trust of Niklas Luhmann. For Coleman, trust is essential for (non-)economic transactions but it is not ‗entrusted‘ without a calculation of utility. Trust is a risk-carrying decision as the behavior of the ‗transaction partner‘ remains uncertain. Trust in this approach is conceived as investment.264 It can also be defined as goodwill and competence or as expectation of benign action and reliance within networks.265 Redding defines two forms of trust in the case of China, one that derives from formal institutions such as law and regulation, and an informal one that derives from ―networks of interpersonal obligation‖, with the latter dominating ―by a wide margin‖. Institutional trust, in contrast, is ―still in its infancy and its growth is not aided by any collective memory of its existence in the past‖.266 However, in China trust is ―mainly based on some subsocieties such as family or clan family, the village, etc.‖.267

3.2. Network organization

3.2.1. Flexible specialization The concept of flexible specialization, or how it is often also called, flexible production, has been created by Piore and Sabel in their book "The second industrial divide", published in 1984. They compared the socio-economic systems and the networks of small and mePowell, 1990, p. 305.

Walter, 2004, p. 114f.

Sennett and Bischoff, 2005, p. 59.

Coleman, 1990, p. 91, Junge, 2006 p. 26, Gabbay and Leenders, 2002, Walter, 2004, p. 115. For a more detailed discussion on trust, see Fukuyama, 1995, Gambetta, 1988b, Dasgupta, 1988b and Luhmann, 1988.

Redding and Witt, 2007, p. 211f.

Hu, 2007, p. 23. See also chapters 6-8.

dium enterprises (SMEs) of regions in and outside Europe and observed that artisan production seems not to be an outdated form of economic action but rather a viable alternative. The book thus draws a connection from premodern craft traditions to the organization of modern production. The authors argue that while the typical production method of Fordism268 which takes place within large-scale enterprises and being highly dependent on vertical integration, has dominated and replaced small-scale production up until the middle of the 20th century; the trend has been reversed towards flexible production within industrial districts in the second half of the last century. However, up to this point, mass production triumphed everywhere, except in areas that were "too narrow and fluctuating to repay the specialized use of resources of mass production".269 When in the middle of the 20th century a crisis of Fordism began, flexible production ―became the leading edge of a totally new form of capitalist production‖.270 By deploying flexible specialization and with the help of subcontracting, SMEs could use advanced and innovative technology to meet the differentiated and fast changing demands of global costumers.271 Even more so, the small enterprises were by this method forced to move "toward greater flexibility [in] provoking technological sophistication - rather than regression to simple techniques".272 Also, it is ―clear that this form of production has become increasingly rationalized so that these small-firm economies progressively get better at being efficient, flexible producers‖.273 To be able to do that, flexible specialization needed to remove itself from the type of organization of production of Taylorism.274 Together with small-scale, custom-made goods it had to introduce co-operation between workers on the three levels of white collar, skilled and unskilled workers as well as a middle skilled group. This increases the professionalism of all workers on the job by experience. This approach often resulted in workers quitting their job to become independent entrepreneurs themselves. Hence, in contrast to Taylorist organizations of work, flexible specialization is intertwined with social mobility and takes place in SMEs within regional economies (see also below).275 Fordism is a method of production that relies on mass production of standardized products with the price being the key element of competition. See Capecchi, 1990, p. 20f.

Piore and Sabel, 1984, p. 206.

Hamilton and Chang, 2003, p. 182.

Piore and Sabel, 1984, p. 215, Hamilton and Chang, 2003, p. 182, Capecchi, 1990, p. 20f.

Piore and Sabel, 1984, p. 207.

Hamilton and Chang, 2003, p. 187.

Taylorism means an organization of work that clearly separates between a minority of white-collar workers, and the majority of unskilled blue-collar workers, with hardly any social mobility. See Capecchi, 1990, p.


Capecchi, 1990, p. 20f.

―Thus, production systems develop complementarities with their societal contexts so that a limited number of different ones become established and, once dominant in a particular society, they are slow to change….Many forms of flexible production, in contrast, are associated with extensive obligational networks between economic actors and considerable cooperation between competitors that developed and continue to be reproduced by particular state and private structures and agencies‖.276 Regions that emphasize flexible specialization have three features in common. They have a specific relationship to the market in the sense that they produce for highly differentiated, regional as well as global markets with instable demand. They are able to change product types and styles quickly to meet the changed needs but also to create those needs.

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