Pierre DesrochersUniversity of Toronto - Geography

A New Silicon Valley? The State Vs Spontaneous Order

Introduction

1) Geography & Economic Development

2) Silicon Valley & Clusters- SV: Facts & Myths- Replicating SV & Creating Clusters

3) Case against Regional Economic Specialization

Conclusion

Overview

Introduction

But Success? What do we Know?

First, back to the basics

of regional economic development…

Economic Activity in a Spiky World (Florida et al.)

1. Geography & Economic Development

Canada

Nordhaus et al.

USA

France

Russia

India

Japan

Key Point: Cities ~ Economic Development

SCHEDEL, Hartmann , Nuremberg, 1493

Why (large & diversified) Cities?

Towns = crossroads

Conventional explanations:

Trade (marketplace)

Urbanization economies

« Where there is city growth, humanity moves forward…;

Élisée Reclus (1895)

Where they flounder, civilization itself is in danger. »

Internal Specializations

Birmingham (UK)

1990s

“In Russia…

there are an immense number of villages

each of which carries on only one branch of production,

or even only a part of one.”

Alfred Marshall, Principles of Economics (1890)

« There are for instance over 500 villages devoted to various branches of woodwork;

one village makes nothing but spokes for the wheels of vehicles;

another nothing but the bodies and so on;

and indications of a like state of things are found in • histories of oriental civilizations • chronicles of medieval Europe »

Russia late 19th C (Marshall)

Combination of factors specialized labour pool localized economies of scale

(specialized suppliers & infrastructure)

knowledge spillovers research institutions

Why Industrial Specialization?

Chicken (cities/clusters) or Egg (economic development)?

Tautology (cities/clusters & agglomeration economies)

Proximity & smart people (and then what?)

Academic Understanding & Policy:Problems

« Local Development Policies »

State Vs Markets: Decades of experience(s)

What have we learned?

2. Silicon Valley & Clusters

Silicon Valley

Early decades 20th C: • San Francisco - radio technology & maritime hub;• Local businesses: Federal Telegraph (1909), Magnovox

(1917), Heintz & Kaufman (1921), Kolster Radio Corp (1928), Litton Engineering Laboratories (1932), Eitel & McCullough (1934)

Mid 20th C: • Cluster of vacuum tube manufacturers• Stanford U & Frederic Terman • Bill Shockley & transistors (left Bell Lab NJ for

Palo Alto – family & business (« buzz ») reasons• Spin-offs: « Traitorous Eight » - Fairchild

semiconductors• « Fairchildren » and others: Intel, H-P, Apple…

Facts

Growth processes?• Same as elsewhere (Detroit/Akron/Italy/Germany)

Government Interventions?• Military contracts (but typically building on existing

firms)

University?• Stanford University – applied and very good / best

Uniqueness of Silicon Valley?

Many • policy makers • intellectual entrepreneurs• real estate promoters

have tried to create• “growth poles”• “high-tech parks”• “industrial districts,”• “clusters”

Silicon Somewhere & Clusters

Charles de Gaulle

François PERROUX (1903-1987)

(1955) “Note sur la notion de pôle de croissance,” Économie Appliquée 8: 307-320 « Growth Poles » climax: 1965 – 1975

Main Outcomes Political and Economic/Geographic

Logics incompatible…

« Targeting » and « Planned External Economies of Scale » don’t deliver…

Spontaneous « Growth Poles  » kept appearing…

Science Parks

Michael PORTER (1947- )

Clusters (pro-specialization, but with nuances…)

1990

Successes few and far between

Main factors of success• Prior locations (near thriving areas)• Formalization of spontaneous growth• Exceptional locations & sustained public efforts

(Raleigh-Durham; Sophia-Antipolis), but mostly relocations of large firm operations

Most overhyped factor:• “World Class” academic institutions

Lessons?

What is a cluster?

Politicians picking winners? stealing from Peter to pay Paul everyone targets same trendy industries

Politics (corruption) as usual… selection of locations favored businesses

Recurring Problems

Urbanization economies

Multiplier effect

Stability & resiliency

Jacobs’ externalities

Fundamental Problem: The Case for Local Diversity

Urbanization Economies:

Regional Multiplier

Stability & Resiliency

Putting all eggs in one basket?

Knowledge SpilloversLocal Economy

Specialized Diversified

Monopoly

Several small

│││││││││││││││││││││││││││

____________________________________________Firms

Jacobs’ Key insight...

+

Innovation = New Combination

=

Case for Jacobs’ SpilloversIf innovation = new combinations; then diverse region = more opportunities; then more opportunities = more innovativemore innovative = more economically

prosperous

Can you plan “diversity” and “Jacobs spillovers”?• Can you plan spontaneity?• Growth poles experience• How does cross-fertilization actually occur?

“Collective” Creativity (Desrochers & Leppala)

1) Multidisciplinary teams within a firm;

2) Employees adding to, or switching, product line; 3) Individuals moving between different lines of

work;

4) Individuals observing a product/process in another setting and incorporating it into their main activity;

5) Individuals possessing different skills and working for different firms collaborating with each other.

Job mobility between industries in the same diversified local economy

Probably most important process…

Why do people move?• bored • job loss• better opportunities • lack credentials / interest administrative work

Key issue:• Remove obstacles to job mobility

Local diversity matters for…work experience individuals acquire and

sectors in which know-how will likely be transferred

network of knowledgeable people

tacit knowledge

agglomeration economies

Conclusion

Alceus ~ 600 BC

“Not houses finely roofed nor the stones of walls well built nor canals nor dockyards make the city,

but men able to use their opportunity.”

Little else is requisite… but peace, easy taxes, and a tolerable administration of justice:

all the rest being brought about by the natural course of things.

Adam Smith, 1755

In the case of cities…Crucial (except for world cities) Reasonably affordable housing Good schools Decent infrastructure Safety/security (personal – property rights) Entrepreneurial mindset Reasonable taxation and regulation

Not crucial Location (transport, weather) Public transportation World class universities Cluster or Silicon Valley-inspired policies…