From “Reflections on Cluster Policies” by Steven Brakman and Charles van Marrewijk, a CESifo working paper, October 2012.
Initiatives to support specific economic clusters or to stimulate the formation of new clusters are again popular in policy circles at all spatial scales (local, region, national and supranational). This popularization is based on [business professor] Michael Porter’s work and subsequent refinements, where specific policy actions can easily be linked to each facet of Porter’s Diamond. Remarkably, the rationale for policy intervention is hardly questioned at all in policy circles. The opposite seems to hold in large parts of academia, which are much more skeptical of clusters and cluster policies.
Not only is the cluster concept rather fuzzy (what is a cluster and how is it defined?), the extent of the spatial scale is also unclear and seems to be changing over time in response to technological changes associated with globalization. The problem for policymakers is that this fuzziness carries over to specific policies; it is difficult to pinpoint what a policy should or could address. In addition, the (long-run) mobility of most factors of production implies that clusters compete with each other for resources; this competition effect as well as the negative feedbacks of clusters (such as congestion, high prices and pollution) is largely ignored in the cluster literature.
The question why cluster policy is so popular is easy to answer: specific interests and empirical support for agglomeration economies. Policies that support your location or stimulate your sector have always been in demand. When combined with the overwhelming empirical evidence that higher density is associated with higher productivity, this demand makes it easier to justify cluster policies. The critics of these policies raise some important objections.
First, what is the specific problem that needs government action, and is not resolved by the market? Second, the causality is often unclear: Does higher density lead to higher productivity or does higher productivity enable higher density? Recent research, indeed, indicates that the causality partly runs from productivity to density, which reduces the rationale for policy intervention.
Randomized trials to settle this question are hardly possible in practice. Third, the demand for support could lead to so-called directly unproductive profit seeking activities that waste resources. Fourth, and most importantly, even acknowledging that the empirical support for agglomeration economies does not, by itself, justify the use of cluster policies. Stimulating a cluster in one location is at the expense of another cluster, possibly in another location.
If the policies focus on stimulating clusters in backward regions, as seems to be the case in the European Union, the outcome is likely to slow down or prevent the movement of factors of production from these locations toward other, more productive locations. The policy then leads to overall lower productivity and results in lower welfare for everyone. This is what [economist Edward] Glaeser calls “leaning against the trend,” that is, keeping people from moving to more productive areas.