The Review of Austrian Economics, 17:2/3, 233–245, 2004.
2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Cluster-Based Economic Strategy, Facilitation Policy
and the Market Process
PIERRE DESROCHERS email@example.com
Department of Geography, University of Toronto at Mississauga, 3359 Mississauga Road North, South Building,
Room 3107, Mississauga, Ontario, Canada L5L 1C6
New Zealand Treasury
Abstract. The geographical concentration of related manufacturing and service ﬁrms is as old as economic
development, but it has drawn renewed attention in the last two decades in the wake of the spectacular growth of a
number of regional economies ranging from Silicon Valley (South San Francisco Bay) to Italian rural manufacturing
districts. While numerous policy prescriptions for regional growth that built on this phenomenon have been devised,
none has enjoyed more popularity among policy makers than the “cluster” based economic development strategy
put forward by Harvard Business School’s Michael Porter. In Porter’s views, clusters are made up of ﬁrms that are
linked in some ways and that are geographically proximate. Upon closer examination, however, this concept turns
out to be so fuzzy that it is now commonly used in a variety of ways by a wide array of academics, consultants
and policy makers. It is further argued that the regional specialization strategy commonly associated with clusters
makes regions more likely to experience economic downturns, prevents the spontaneous creation of inter-industry
linkages and hampers the creation of new ideas and businesses.
KeyWords: Michael Porter, cluster, industrial policy, industrial districts, regional development
JEL classiﬁcation: L52, O21, R58
The geographical concentration of related manufacturing and service ﬁrms is as old as
butithas drawn renewed attention in the last two decades in the
wake of the spectacular growth of regional economies such as Silicon Valley (South San
Francisco Bay), Route 128 (greater Boston area) and the “discovery” of numerous other
manufacturing districts from Denmark and Italy to Thailand and Japan.
While numerous policy prescriptions for regional growth that built on related and in-
terdependent ﬁrms have been devised,
the most appealing—in political if not economic
terms—has been the “cluster” based economic development strategy put forward by Harvard
Business School’s Michael Porter. The literature on clusters has literally exploded since the
mid-1990s with the publication of many “how to” books and the organization of several
dozen major conferences on the topic. Many major economic consulting ﬁrms and university
research groups have also been created to study and developed ways to implement this strat-
egy(Waits 2000). As one observer has put it, “governments and regional development orga-
nizations on all continents except Antarctica have come calling” to Porter (Hoffman 2001).