In recent years cluster policy has become a central component of regional economic development strategy across many European economies. However, concerns are now emerging over the content and quality of some of these initiatives. Given the prevalence of the approach, these apprehensions are non-trivial and have significant implications with regard to the value and contribution of regional economic development. Here we examine the extent to which weaknesses in the theoretical and methodological underpinnings of the cluster approach may have acted in combination with pressures generated by the 'congested state' to produce a number of difficulties. The essay explores the nature, challenges and weaknesses of cluster policy in the context of the demands created by multi-level and multi-actor governance frameworks. We conclude that, irrespective of whether cluster policy is the appropriate choice as an economic development tool in any particular regional or economic circumstance, its selection always necessitates prior consideration of the institutional capacity needed to meet the governance challenges that it creates. Copyright (c) 2008 The Authors. Journal Compilation (c) 2008 Joint Editors and Blackwell Publishing Ltd.

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The paper examines the policy responses in the UK West Midlands to the successive crises at the car maker MG-Rover. Whilst the firm's eventual collapse in 2005 was a substantial shock to the West Midlands economy, the impact was much less than was anticipated when the firm was first threatened with closure in 2000 at the time of its break-up and sale by the German car firm BMW. Although the firm struggled as an independent producer, the five years of continued production until 2005 and the work of the initial Rover Task Force (RTF1), enabled many suppliers to adjust and diversify away from their hitherto dependence on MG-Rover resulting in as many as 10,000-12,000 jobs being 'saved'. This first intervention was later followed by a programme to help ex-workers to find new jobs or re-train and assist supply firms to continue trading in the short term. Examination of the effectiveness of these emergency initiatives enables a wider discussion about the nature of industrial policy in the region and the work of the local regional development agency's cluster-based approach to economic development and business support. Whilst the actions taken were successful in a number of aspects, there were a number of significant 'failures' at both national and local level. The MG-Rover case also illustrates a number of critical issues pertaining to regionally based cluster policies and the organization of cluster management groups where the 'cluster' in question not only crosses both administrative and 'sector' boundaries but is also subject to the imperatives of the global market car market. JEL classification: L52, L62, N94, R11, R58Key words: Rover Task Force, MG Rover, automotive industry, cluster policy, industrial policy, regional development agencies * The authors wish to acknowledge the support of the ESRC under award number RES-000-22-2478.

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This paper sets the scene for this Policy Studies special issue on plant closures by outlining the form of the auto cluster in the West Midlands, the nature of structural changes unfolding in the industry, and the decline and eventual collapse of MG Rover (MGR). Structural changes highlighted include: greater pressure on firms to recover costs when technological change has been intensifying, driving up the costs of new model development; increased international sourcing of modular components; and a shift of final assembly operations towards lower-cost locations. All of these make maintaining mature clusters such as the West Midlands more challenging for firms and policy-makers. The paper then looks at 'what went wrong' at MGR. Given long-run problems at the firm and its inability to recover costs, BMW's sale of the firm in 2000 left MGR virtually dead on its feet, and by 2002/2003 it was clear to many that the firm was running out of time. Whilst recognising that the firm's demise was ultimately a long-term failure of management, the paper also looks at other contributing factors, including government policy mistakes over the years, such as the misguided 'national champions' approach in the 1950s and 1960s, a failure to integrate activities under nationalisation in the 1970s, a mistaken privatisation to British Aerospace in the 1980s, and a downside of competition policy in 'allowing' the sale to a largely inappropriate owner in BMW in the 1990s. The considerable volatility of sterling in recent years hastened the firm's eventual demise.

The manufacture of automobiles and components in the UK West Midlands reached its peak during the two decades after the Second World War. In the following four decades, despite the overall growth in world sales, there has been a steady decline both in the numbers of vehicles produced and overall employment as local industry found itself unable to cope with overseas competition brought about by the opening of world trade through GATT and then, latterly, by the UK's membership of the European Single Market. Over this same period a succession of both national and regional policy measures have been spectacularly unsuccessful. Initiatives such as the government supported merger of independent producers to form of the British Motor Corporation in the 1950s, the use of the planning laws to encourage green field development away from the region in the 1960s, the nationalisation of the (then) British Leyland in the 1970s, the support for FDI by Japanese manufacturers in the 1980s and the Rover-centric Accelerate project in the 1990s have all tended to mirror and/or exacerbate the problems of short-termism and poor practice. Since early 2000, regional policy has been under the stewardship of the local Regional Development Agency, Advantage West Midlands. Rather than simply seeking to preserve existing policy, the RDA has latterly adopted new policies to support niche manufacturing and high value engineering and to align the regional knowledge base with the search for sustainable solutions to environmental and congestion issues. The new strategy moves away from traditional support measures based on the needs of big companies or 'champions' and instead adopts a devolved approach centred on a mix of small and large businesses and high level research, and -arguably -towards an 'open innovation' approach. In this article we examine these new policy measures and their potential to create a new innovative and competitive environment in the region.

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