On Specialization, Divergence and Evolution: A Brief Response to Ron Martin’s Review

Abstract

We thank Ron Martin for his insightful review essay on our book. Ron Martin has, as always, raised many of the issues that are central to understanding the development pathways of regions and to structuring research to generate robust insights that could be useful in sustaining or creating prosperous, inclusive regions. It is therefore a pleasure to be able to engage with his discussion in a way that hopefully will help us all to move forward collectively First, we agree with Ron Martin that research on regional development should be securely anchored in both theory and data. We respectfully disagree with his remark that our book is light on detailed data analysis. One of our major intentions in this book was to test a wide variety of explanations of regional growth and decline by marrying rigorous theory to as much data as possible, whether the issue be one of hard regional economics or "softer" institutional factors. To this end, the book is built upon what we believe to be an exhaustive, and at times innovative body of data-driven scholarship about our two metropolitan areas. Our study of each region's economic base and labor market is based on dis-aggregations of published data that are more detailed than in any other published study of two cities. This dis-aggregation method allow original empirical insights into specialization, labor demand, labor supply, skills, wages and task structures. For some of our labor and housing market analyses, we used detailed micro-data. Further, to our knowledge, there exists no comparable analysis of the structure of two big cities' civic and economic networks. The comprehensive and unique work in the book on innovation networks, entrepreneurialism, social capital, public spending are all rely heavily on original data analysis. We also undertake a detailed, historical content analysis of discourses and narratives about economic development in each region-a first for the literature. And finally, our extensive historical, qualitative and interview data, complement this wealth of quantitative material. In short, in the urban and regional economic development literature, we know of no equivalent integration of this wealth of original evidence on two cities. Second, Ron Martin raises the centrally important issue of the role of specialization in economic development today. In the cases at hand, we show that specialization leads to high regional incomes, in the past and in the present. Ron Martin seems to suggest that regional economic diversification might be a key to high income. The debate about specialization versus diversification suffers from both conceptual confusion and weak empirics. Kemeny and Storper (2014) report on some original econometrics that suggest that specialization and economic

Unrelated knowledge combinations: the unexplored potential for regional industrial path development

“…Unrelated variety contributes to new path development due to the learning and innovation potential arising from the combination of dissimilar/unrelated knowledge. In this regard, we do not agree with Storper et al (2016Storper et al ( , p. 1629 who argue that "in contemporary high technology, the fortunes of lawyers, investment bankers, venture capitalists and programmers are all intertwined if they are related through input-output linkages and dependent on the same source of demand, the same innovative dynamics, the same regional price system. They do not make for a diversified regional economy, because they are part of an interdependent ecosystem.…”

“…The related variety argument limits the role of Jacob's diversity (unrelated variety) to portfolio effects while some proponents of the specialisation concept more generally reject the idea that the existence of a diverse set of unrelated economic activities may stimulate learning and innovation (Kemeny and Storper 2015;Storper et al 2016). In contrast, we argue that unrelated variety is an important source for learning and innovation.…”

“…The notion of specialisation relates to the division of labour in a production and innovation system that allows for the accumulation of very specific competences and resources as well as the routines and institutions that facilitate recombination. Storper et al (2016Storper et al ( : 1629 make another important claim, namely that specialisation and diversity "can only be understood over time, in light of broad tendencies of the economy-wide phases of development (e.g., old economy to new economy), and over space in terms of the economy-wide division of labour and how it evolves over the life of the economy-wide dynamic." The argument builds on the industry life-cycle theory and stipulates that dynamic, innovation-based sectors like ICT and life-sciences are highly clustered due to a number of factors such as high rates of change in technologies and markets, thus high uncertainties and high stickiness of knowledge, and the need of conventions in order to overcome these uncertainties and facilitate knowledge sharing.…”

“…The abstract space of an industry is defined by industryspecific institutions and technologies, which create a common frame for interactions regardless the location of the actors. Specialisation in concrete geographic space can be associated with dynamic regions such as Silicon Valley (Saxenian 1994) as well as with declining regions such as old industrial regions (Hassink 2010) depending on the character of the specialisation (Storper et al 2016).…”

Local entrepreneurship ecosystems and emerging industries

“…Specialisation in one industry can be understood as a cluster (Porter 1998(Porter , 2000 with strong traded and untraded interdependencies between related firms and organisations (Storper 1995). Storper et al (2016) also distinguish between specialisation in growing and dynamic industries versus specialisation in mature and declining industries. The former are the major source for superior economic growth in core regions.…”