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

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Additionally, they use diversely applicable, highly flexible technology. The third characteristic is the creation of regional institutions that support co-operation, and competition between companies stimulates innovation. This means that competition does not rely on price reductions but requires creativity. This reconciliation between competition and cooperation can be achieved by regional clustering of SMEs, like for example in the Third Italy, by groups of loosely connected large corporation, by ‗solar‘ enterprises that gather small subsidiary companies around them geographically and also by decentralized production.277 Within regional clusters, no single enterprise has permanently the leadership but arrangements between companies are organized over short-term contracts in which the role of the participating companies can change, supported by surrounding institutions like trading associations or unions. The cohesion of these regional industries is based on a deeply rooted sense for community or sometimes also ethnical or religious ties. Familism and kinship ties play also a decisive role in providing the necessary capital for starting up a small enterprise or providing labor.278 Flexible specialization relies on the complementarity of co-operation and competition that enhances the potential for innovations and impedes a ‗race to the bottom‘ for wages and prices. Also, it includes the workers and their skills into the production and innovation process and thus also works towards a strong community and an attractive atmosphere for working and living. It is interesting to note that the implementation of high-end technology Whitley, 1999, p. 22f.

Piore and Sabel, 1984, p. 205ff., 266f., 305f.

Piore and Sabel, 1984, p. 34f., 274ff.

depends to a large part on social relations and loyalty that are usually associated with a preindustrial society.279 3.2.2. Concepts of regional networks “For in these trades the advantages of production on a large scale can in general be as well attained by the aggregation of a large number of small masters into one district as by the erection of a few large works”.280 Neo-regionalism In contrast to the notion of mainstream economics that international enterprises are not geographically or nationally bound and not anchored to a certain region, and that locations of production are merely determined by the most cost-efficient production factors, the concept of neo-regionalism emphasizes the significance of regional embeddedness.281 A region in this setting is defined as a socio-economic integration as well as a relational space and political unit with a shared territorial identity.282 Whereas the first view regards global players as being connected over a dynamic global network within a ―global space of flows‖, the second approach sees territorial attachment as competitive advantage as the region serves as spatial synergy and innovation system without a single business being the driving force behind the overall technological progress.283 It is rather the geographically bound cluster of specific, regionally developed skills and knowledge that benefits from the highly innovative, post-fordist environment instead of price competition.

Therefore, one of the key assumptions of neo-regionalism is that ―long-term industrial competitiveness is related to the ability of firms continuously to upgrade their knowledge base and performance, rather than just to obtain static efficiency through identification and exploitation of cheap resources and economies of scale‖.284 Thus, neo-regionalism assumes that differences between regions will increase as local skills and knowledge further differentiate, collaborating in a highly dynamic setting of flexible organization and intertwining of competition and co-operation within a network.285 However, ―the more tacit the knowWalter, 2004, p. 54-58.

Marshall, 1975 [1879], p. 196.

Walter, 2004, p. 19f.

Walter, 2004, p. 20f.

Castells, 1989.

Maskell and Malmberg, 1999, p. 179.

Walter, 2004, p. 20.

ledge286 involved, the more important is spatial proximity between the actors taking part in the exchange. […] To communicate tacit knowledge will normally require a high degree of mutual trust and understanding, which in turn is related not only to language but also to shared values and ‗culture‘‖. Hence, companies are connected over relationships that are dependent on local conventions, norms and values.287 Regions compete and can be distinguished by their cultural background and ethics which are regarded as an influential variable for economic development.288 Economic agents are embedded in enduring systems of social relationships which are necessarily locally and contextually bound. So besides geographical closeness, also social proximity is essential because only by that participation in regional labor markets and supply structures can be ensured.289 The explanation of how a specific region can be more successful than others is often seen in the particular communication and co-ordination structures that result in routines that favor innovation and progress.

Neo-regionalism also emphasizes the active role of public policy and implicitly claims that it is in principle possible to choose specific regions and by the right dose of subsidies to induce learning processes and turn those regions into successful industrial hubs. Although neo-regionalism emphasizes the role of specific regions in supporting learning, innovation and growth processes, it fails to explain the socio-cultural conditions of those innovative networks. When and how these are developed is largely left unexplored.290 ―Without adding a cultural dimension to structural accounts of embeddedness, it is difficult to understand the negotiated, emergent quality of trust in many concrete settings, and the ability of entrepreneurs to construct networks out of diverse regions of their social worlds‖.291 The concept of regional economies dependent on flexible production has been linked to the notion of Marshall‘s industrial district (see also below).292 It is also connected to the concept of innovative milieu, also further analyzed below.

Regions equipped with the necessary endowment or ―localized capabilities‖ developed a so-called innovative milieu with a thick knowledge base. It is embedded in individual skills, in routines and procedures of organizations. The milieu itself encompasses dynamic network structures within firms and auxiliary institutions. If skills and knowledge are diffiFor the comparison of codified and non-codified as well as implicit - or tacit - knowledge that is necessarily associated with a certain person, please refer to Bathelt and Glückler, 2003, p. 57.

Maskell and Malmberg, 1999, p. 180.

Walter, 2004, p. 21ff.

Bathelt and Glückler, 2000, p. 168ff.

Walter, 2004, p. 26.

DiMaggio, 1994, p. 39.

Storper, 1992, p. 89.

cult to obtain and imitate and if they are singular enough, the competitive advantage of a milieu (and hence, a region), can be a long-term phenomenon. Generally, the combined capabilities of knowledge creation and cumulative learning of a region is more than ‗the sum of its parts‘ and for that difficult to replicate. This fact is often called path-dependent, as it is regarded as explanans for the development of ―spatial agglomerations of related firms‖.293 However, ―there is a need to remain open to the radical change which will sooner or later require, to paraphrase Schumpeter, a readiness for creative ‗un-learning‘‖.294 Innovative milieus The concept of innovative milieu is a European invention295 but is not a uniform approach. It defines a milieu as ―context for development, which empowers and guides innovative agents to be able to innovate and to coordinate with other innovating agents‖ within a ―system of regional institutions, rules, and practices‖.296 A common definition of the milieu can be given as follows: ―A territory is not a defined space of resources. It is the mode of establishment of a group, in the natural environment, which through the organization and localization of activities, generates prevalent conditions of communication-language and collective learning (the forms of cooperation which create technological and organizational rationalities)‖ and ―the milieu appears as the socioeconomic formation which, at one and the same time, generates the economic dynamic and constitutes itself in setting this dynamic into motion. In other words, milieux take form in organizing themselves and they do so even better insofar as they are territorialized. The emergence of organizational dynamism is correlative to the dynamism of local milieux‖.297 A milieu determines ―a specific external ‗image‘ and a specific internal ‗representation‘ and sense of belonging, which enhances the local innovative capability through synergetic Maskell and Malmberg, 1999, p. 180.

Maskell and Malmberg, 1999, p. 181. The importance of economic geography, or more correctly geographical economics, was also brought to attention by Krugman, 1993. However, his theory circles around the idea of lowering transaction costs and economies of scale when spatial issues are included in discussion.

Thus, Krugman presents a rather narrow concept of spatial economics. Also, it is not a new concept as such, but he merely introduced geography to mainstream economic theory.

The concept of the innovative milieu was developed by the GREMI group (Groupement Europeen des Milieux Innovateurs), consisting of French, Italian and Swiss regional economists, founded in 1986. Aydalot, 1986.

Storper, 1995, p. 203. Storper gives an overview and critical analysis on several regional concepts of innovation.

Storper, 1995, p. 203, quoting from a French paper of Jean-Claude Perrin: ―Pour une Révision de la Science Régionale: l‘Approche en Termes de Milieu‖, Centre d‘Economie Régionale, University of AixMarseille, Aix-en-Provence, No. 148-1993/3.

and collective learning processes‖.298 The milieu as localized production system is the geographical phenomenon of what Mark Granovetter called the ‘embeddedness‘ of social and economic processes.299 It uses informal networks to organize these processes as well as for co-operation and communication but is often regarded as network of the actors itself who are bound to a certain territorial context and therefore also produce the milieu. The localized production system relies on the network relations between companies. These relations are on the one hand material and commercial, but even more so horizontal and multilateral, immaterial and non-commercial and dependent on the strength of ―relational capital‖. The habitual collaboration results in dense relational capital and trust which are mutual dependent. Personal contacts are transformed for innovative business purposes.300 These relations are part of what Ratti calls „supporting space―, which is separated from a market and production space.301 Nevertheless, the region is not merely a passive location but has the ability to organize its development within global economic structures.302 As within Marshall‘s district, there is something ―in the air‖ that supports innovation.303 The spatial delimitation of an innovative milieu is not dependent on administrative units but on homogeneity of behavior, values, collective know-how, technical culture and shared work ethics, resulting in solidarity and mutual trust and ultimately in a feeling of belonging.304 The milieu is defined as innovative if it is able to open up to the outside to acquire necessary information or resources for alterations.305 Innovation is thus possible when the endogenous logic of the milieu and the strength of its relational capital is combined with its interaction with the world outside. It is a continuing process of adaptability, change and evolution. Knowledge becomes a territorial specificity and withdraws itself from the competitive pressures of the market because it is hard to reproduce elsewhere.306 Regional innovation networks are multi-functional and developed based on the existing relational capital, without clear defined costs and benefits. It remains open under which circumstance actors are induced to use personal contacts for innovative projects and networks.307 A milieu is seen as metaphor for the explanation of regional embeddedness of economic activity in cultural, social and political structures. Related to the concept of neoCamagni, 1991, p. 3 Granovetter, 1985 Maillat, 1995, p. 159.

Ratti, 1991.

Walter, 2004, p. 35.

Marshall and Marshall, 1888, p. 53, Marshall, 1919, p. 284ff., see below.

Walter, 2004, p. 38f., Ramazotti, 2010, p. 960.

Maillat, 1995, p. 161, Walter, 2004, p. 39.

Walter, 2004, p. 39, Maillat, 1998, p. 10.

Walter, 2004, p. 40.

regionalism, an emphasis is made on cumulative learning processes which stem from a regional identity and typical local production structures.308 However, the mechanism of how a milieu encourages innovation remains unresolved. It is a circular argument that innovation happens within a milieu which only exists because of the innovative environment.

Besides the notion that knowledge creation is an essential part of it, the economic logic behind its processes is no more specified than the importance of the geographical limitation for its dynamics.309 The boundary of an innovative to milieu to an industrial district is also not straightforward and mostly both phenomena are described very similar. Often, no differentiation is made between innovative milieu, industrial district and cluster and these terms are used as synonyms.310 However, the theories of the industrial district seem to be further developed and are presented below in detail. Cluster In his book The Competitive Advantage of Nations Michael Porter developed the concept of the business cluster which is today therefore also often called Porterian cluster.

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