New Public-Private Responsibilities
Economic geography in an era of global competition, then, poses a paradox. In a global economy—which boasts rapid transportation, high-speed communication, and accessible markets—one would expect location to diminish in importance. But the opposite is true. The enduring competitive advantages in a global economy are often heavily local, arising from concentrations of highly specialized skills and knowledge, institutions, rivals, related businesses, and sophisticated customers. Geographic, cultural, and institutional proximity leads to special access, closer relationships, better information, powerful incentives, and other advantages in productivity and innovation that are difficult to tap from a distance. The more the world economy becomes complex, knowledge based, and dynamic, the more this is true.
Leaders of businesses, government, and institutions all have a stake—and a role to play—in the new economics of competition. Clusters reveal the mutual dependence and collective responsibility of all these entities for creating the conditions for productive competition. This task will require fresh thinking on the part of leaders and the willingness to abandon the traditional categories that drive our thinking about who does what in the economy. The lines between public and private investment blur. Companies, no less than governments and universities, have a stake in education. Universities have a stake in the competitiveness of local businesses. By revealing the process by which wealth is actually created in an economy, clusters open new public-private avenues for constructive action.
1. I first made this argument in The Competitive Advantage of Nations (New York: Free Press, 1990). I modeled the effect of the local business environment on competition in terms of four interrelated influences, graphically depicted in a diamond: factor conditions (the cost and quality of inputs); demand conditions (the sophistication of local customers); the context for firm strategy and rivalry (the nature and intensity of local competition); and related and supporting industries (the local extent and sophistication of suppliers and related industries). Diamond theory stresses how these elements combine to produce a dynamic, stimulating, and intensely competitive business environment.
A cluster is the manifestation of the diamond at work. Proximity—the colocation of companies, customers, and suppliers—amplifies all of the pressures to innovate and upgrade.
2. Selected case studies are described in “Clusters and Competition” in my book On Competition (Boston: Harvard Business School Press, 1998), which also includes citations of the published output of a number of cluster initiatives. Readers can also find a full treatment of the intellectual roots of cluster thinking, along with an extensive bibliography.