The Road through the Rust Belt: From Preeminence to Decline to Prosperity

4 - The Evolution of Clusters and Implications for the Revival of Old Industrial Cities

69 4 The Evolution of Clusters and Implications for the Revival of Old Industrial Cities Haifeng Qian Cleveland State University It has long been thought that firms cluster to gain shared economic benefits related to scale, access to skilled labor forces, and transportation costs. Over time the concept of clusters has evolved, no more so than in the Rust Belt cities of the Midwest. The study of industrial or regional clusters has a long history. Alfred Marshall (1920) discussed the localization of firms within the same area to pursue a shared labor pool, local provision of industrial inputs, and spillovers of knowledge and information. The neoclassical tradition emphasizes the impact of transportation costs and economies of scale on shaping the location of firms (Hoover 1937; Isard 1951; Krugman 1991). Following the economic transformation from Fordist capitalism to post-Fordist capitalism in the developed world, there has been renewed attention on agglomeration and clusters for the past three decades. Scholars with a variety of backgrounds, including economics , regional science, geography, planning, and business management, have sought the reasons for clustering or agglomeration economies. These researchers have pursued new perspectives, including increasing returns, flexible production, innovation, entrepreneurship, knowledge spillovers, and networks (Acs and Varga 2005; Gordon and McCann 2000; Jacobs 1969; Markusen 1996; Porter 1998; Scott 1988). Witnessing the success of U.S. high-technology clusters, such as Silicon Valley in California; Austin, Texas; and Research Triangle Park in North Carolina, policymakers have increasingly considered clusters as an effective tool for economic development. President Obama, for Bowen.indb 69 Bowen.indb 69 12/16/2013 2:13:52 PM 12/16/2013 2:13:52 PM 70 Qian instance, supported a federal initiative to bolster regional innovation clusters, with $100 million requested in his proposed fiscal year 2010 budget. This has been especially inspired by the work of Harvard Business School Professor Michael Porter (1998, 2003), who has sought to operationalize the identification of clusters. Professor Porter was invited to speak on clusters at the 2011 annual meeting of the National Governors Association. Meanwhile, as of July 2011, 7 of the 10 most read articles in Economic Development Quarterly, a journal focusing on economic development policy and practice, included “cluster” in their titles.1 The purpose of this chapter is to survey the literature on the evolution of clusters and explore its implications for the revival of old industrial or Rust Belt cities. Many old industrial cities feature declining or declined clusters and are struggling to revitalize their economies. The chapter starts with a review of definitions and typologies of clusters. It then summarizes four streams of literature discussing the evolution of clusters and endeavors to identify some major forces behind the dynamics of clusters, based on the limited research available. It does not solely address clusters manifested in old industrial cities (e.g., the industrial complexes identified by Iammarino and McCann [2006]), since one type of cluster may evolve into another type. The chapter further examines cluster development in the U.S. Rust Belt, using Cleveland as an example, and explores the implications of clusters’ evolution paths for the revival of old industrial cities. CLUSTERS: DEFINITIONS AND TYPOLOGIES There are several terms associated with clusters, which have been increasingly used in an interchangeable fashion, including “agglomeration ,” “new industrial districts/places,” and “regional/industrial/business clusters,” among others. The first wave of cluster research was primarily propelled by the seminal work of Marshall (1920), who popularized an agglomeration approach to understanding the phenomenon. This perspective was carried forward in the work of Hoover (1937, 1948), Mills (1972), and Krugman (1991). Together with Isard’s industrial complex approach (e.g., Isard and Vietorisz 1955), the agglomeration Bowen.indb 70 Bowen.indb 70 12/16/2013 2:13:52 PM 12/16/2013 2:13:52 PM The Evolution of Clusters and the Revival of Old Industrial Cities 71 view explored the benefits of spatial or geographical clusters in terms of transportation costs, economies of scale, shared labor and industryspecific inputs, and to a lesser extent, knowledge spillovers. Hoover (1937, 1948) classified agglomeration as consisting of firms’ internal expansion, localization economies, and urbanization economies. Internal expansion represents a firm’s economies of scale; localization economies address cost reductions as a result of the spatial concentration of businesses from the same sector; and urbanization economies consider the benefits of agglomeration irrespective of sectors. Clusters regained scholarly attention in the early 1980s among not...