Academic journal article Entrepreneurship: Theory and Practice

Entrepreneurial Policy: The Case of Regional Specialization vs. Spontaneous Industrial Diversity

Academic journal article Entrepreneurship: Theory and Practice

Entrepreneurial Policy: The Case of Regional Specialization vs. Spontaneous Industrial Diversity

Article excerpt

Regional economic development policy is recognized as a key tool governments use to foster economic prosperity. Whether specialization (or diversity) of economic activities should be a regional development policy goal is often debated. We address this question in a local-diversity context, by reviewing traditional arguments in its favor, supplemented with evidence for more entrepreneurial concepts like industrial symbiosis and Jacobs externalities, We show that the context of entrepreneurship matters more to policy than the type and form of resulting industries. Policies enabling entrepreneurs to exploit opportunities in a context of spontaneously evolved industrial diversity are better facilitators of regional development.

Introduction

Regional development prescriptions based on the promotion of geographically localized, related, and interdependent firms can be traced back at least to the "growth pole," "growth center," and "industrial complex" strategies implemented in numerous countries in the 1960s and 1970s. While the main goals of these policies were to create agglomeration economies (or "external economies of scale") and to increase productivity, more recent approaches--with Michael Porter's (1990) cluster strategy being by far the most influential--have emphasized the positive impact that a regional context made up of geographically proximate and industry-related firms and institutions can have on entrepreneurial and innovative activities. While the cluster strategy has been criticized on several counts, ranging from its fuzziness to its status as a rationale for supporting politically favored industries (Bathelt, 2005; Desrochers & Sautet, 2004; Rocha, 2004), it has nonetheless successfully overturned the previously prevalent diversification objective of most local development officials and established regional specialization as the preferred goal (Rosenfeld, 2001).

As Rocha and Sternberg (2005, p. 267) point out, however, research on the impact of local conditions on entrepreneurial behavior remains theoretically and empirically scarce due to "conceptual, theoretical, and methodological limitations." Taking a broad view of entrepreneurial activities, which it defines as the creation of new economic activities and the pursuit of innovation, this essay aims to address this issue by suggesting that a "successful" policy push toward specialization might contain the seeds of its own demise by leaving regional economies more vulnerable to cyclical downturns and less likely to support the emergence of innovative practices and behavior, such as the development of interindustry linkages and new combinations of existing technologies and materials ("Jacobs externalities"). (1)

The issue is not that regional specialization policies are developed at the expense of spontaneous industrial diversity. Indeed, the two can coexist. Rather, we argue that entrepreneurial activity is at the source of regional development and that theory and evidence seem to indicate that spontaneously developed industrial and economic local diversity typically provide a better substrate for entrepreneurs to innovate. While we do not argue the pursuit of diversity as a policy goal, we strongly emphasize the limits and problems inherent to regional specialization strategies by pointing out that a diverse environment is often a necessary precondition for the spontaneous emergence of diverse local specializations.

The paper is structured as follows. The first section reviews the main points of contention in a long-standing debate among academics, local development professionals, members of local business associations, and policy makers as to the respective advantages and pitfalls of the regional specialization and diversity of economic activities. The second section briefly evaluates whether planned regional specialization efforts, by far the most dominant perspective in recent years, have been successful. …

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