Clusters: Which Theory Do you Believe?

Most cluster policy interventions are based on certain assumptions about the underlying processes that cause firms in an industry or region to cluster. The most of common of these arise from the "silicon valley" myth. Clusters are formed, the theory goes, because of informational and knowledge spillovers. When people meet other people through chance occurings, nice things happen. Consequently, governments around the world have tried to put together institutions (sometimes referred to as 'institutions of collaboration') to promote this informal networking in region's industry. These interventions to promote informational spillovers would only work if the hypothesized underlying mechanism is correct. Dr. Michael Darby of UCLA, however, aruges for different mechanism underlying the localized character of industries. He reports that industries cluster not because of informational spillovers but because of market-mediated transactions between individuals. According to this view, leading-edge researchers do not find entrepreneurs and financiers by chance but because the latter seek them out and engage the former. The policy implications of believing Darby's theory of economic clustering are significantly different. If you were to believe that firms locate around universities because they need to be near leading-edge researchers who act as advisors, consultants, and entrepreneurs on companies, the logical policy to pursue would be to relax technology transfer policies at univerisities that would allow faculty to consult with the industry and participate in start-up activity.