Refereed Paper

Regional Economic Development:
Exploring the ‘Role of Government’ in Porter’s Industrial Cluster Theory.
Dr Mark Wickham
School of Management
University of Tasmania

Mark Wickham
Locked Bag 16
School of Management
University of Tasmania
Hobart Campus
Sandybay 7005.
Ph: 03 6226 2159
Fax: 03 6226 2808
[email protected]

Dr Mark Wickham works as a lecturer at the University of Tasmania, specialising in the disciplines of Business Strategy and Marketing. Mark’s PhD examined the 25-year relationship between the Tasmanian state government and the Tasmanian light shipbuilding cluster in order to advance a more strategic ‘role of government’ in industrial cluster development. Mark is also interested in researching strategic marketing concepts, particularly those concerning Ethics and Integrated Marketing Communications.

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CRIC Cluster conference. Beyond Cluster- Current Practices & Future Strategies Ballarat, June 30-July 1, 2005

Refereed Paper

Regional economic development:
Exploring the ‘role of government’ in porter’s industrial cluster theory.

ABSTRACT
Porter’s Industrial Cluster Theory (ICT) is a theoretical framework that achieved prominence in Australian economic policy development. Despite its widespread adoption, however, Australia has remained significantly below the OECD average in terms of its industrial clusters’ contributions to real wealth creation. In order to understand the positive role that (Australian) governments can play in the development of industry clusters, this paper analyses the 25-year history of the Tasmanian Light Shipbuilding Industry cluster. This analysis provides an insight into the set of government policy roles that facilitated the development of this internationally competitive industry cluster. This paper also proposes a re-conceptualisation of ICT that will potentially increase its value as a predictive tool for regional economic development.

Key words: Industrial cluster theory, role of government, cluster policy, regional economic development.

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CRIC Cluster conference. Beyond Cluster- Current Practices & Future Strategies Ballarat, June 30-July 1, 2005

Refereed Paper

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CRIC Cluster conference. Beyond Cluster- Current Practices & Future Strategies Ballarat, June 30-July 1, 2005

Refereed Paper
Regional Economic Development:
Exploring the ‘Role of Government’ in Porter’s Industrial Cluster Theory.

Introduction.
Since the 1970s, the onrush of globalisation in Australia’s markets has presented significant economic policy challenges to the country’s federal and state governments (Everett, 2002; Goldfinch, 1999; Moustafine, 1999). A major concern for Australian legislators was (and remains) the question as to how to make a nation previously protected by a ‘fortress’ of tariffs and subsidies more productive and competitive in world markets (Brown, 2000; Edwards, 2002; Martin, 2000; Quiggin, 1999). One theoretical framework that achieved prominence in Australian economic policy development since its inception in 1990 is Porter’s Industrial Cluster Theory (ICT) (see Australian Manufacturing Council, 1994; Bureau of Industry Economics, 1991; Keating, 1994; Kelty, 1993; McKinsey & Company, 1994). As part of his book The Competitive Advantage of Nations, Porter developed the notion that innovative industrial clusters are integral to export earnings and the generation of national competitive advantage. Porter’s ICT argues that a nation’s industry will be internationally competitive if a synergistic interrelationship exists between four important variables collectively known as the Diamond Factor Model: ‘Factor Conditions’; ‘Local Demand Conditions’; ‘Related and Supporting Industries’; ‘Firm Strategy, Structure and Rivalry’; and the two influencing roles of ‘Chance Events’ and ‘Government’. (See Porter (1990) for a discussion of the Diamond Factor Model, and Figure 1 for a diagrammatic representation).

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CRIC Cluster conference. Beyond Cluster- Current Practices & Future Strategies Ballarat, June 30-July 1, 2005

Refereed Paper

Figure 1: Porter’s (1990) Diamond Factor Model.

Since the adoption of Porter’s Diamond Factor Model (DFM) as a basis for policy development, however, there has been considerable debate concerning its effectiveness, and indeed its appropriateness as a policy framework for Australia (see for example, Boddy, 2000; Gordon & McCann, 2000; Lyons, 1995; Wejland, 1999; Yla-Anttila, 1994). The debate has arisen due to the observed disconnect between the country’s numerous (and expensive) attempts to incorporate the DFM as a policy framework, and the fact that despite these efforts, Australia remains significantly below the OECD average in terms of its industrial clusters’ economic contributions to real wealth creation (Brown, 2000; OECD, 1998; Porter, 2002, cited in James, 2002). An examination of the literature identifies three main issues that account for the observed failures and under-performance of Australian industrial cluster policy. The first major issue is that Australian government policy development has largely been focused on descriptive information gathering rather than on achieving either business participation in, or greater understanding of the complex industrial clustering process 5

CRIC Cluster conference. Beyond Cluster- Current Practices & Future Strategies Ballarat, June 30-July 1, 2005

Refereed Paper
(Davies, 2001). In many of the failed or under-performing IC developments, researchers noted that the associated government policy ignored the local and interregional industrial linkages and/or the channels of technology and knowledge transfer that existed, instead relying on relatively simple measures (such as ‘industry size’) to detect potential industry clusters. These simplistic measures are a common feature of Australian industrial cluster policy, and formed the basis upon which expensive and complex resource allocations were made (Gordon & McCann, 2000). The second major issue surrounds an assumption by Australian policy-makers that the facts explaining the existence of industry clusters around the globe are readily generalisable to the Australian context (Boddy, 2000). Of particular concern has been the assumption of Australian policy makers that simply replicating the policy choices of governments associated with successful clusters (such as Silicon Valley) will be successful despite the lack of evidence to support this contention. Boddy (2000) suggests that there are clear dangers in attempting to reproduce significant policy direction from a relatively small number of specific cases, especially those whose economic performance is inherently atypical.

One of the major dangers of
incorporating a ‘carbon copy’ approach to policy development is that of misunderstanding the specific origins and competencies inherent to a region’s economy (Boddy, 2000). Without the specific insight into how the relationships and networks between firms and industry is created and maintained, government policy directed at merely ‘locating firms together’ appears to omit and/or ignore the most important and dynamic aspects of the industrial clustering process.

The third issue concerns the record of Australian governments’ resource allocation as it pertains the development of industry cluster formation. Feser and Bergman (2000) note that, at least at the regional level, the approach frequently adopted by policymakers involves little more than the identification of current regional specialisations as targets for traditional development initiatives. In such cases, a cluster strategy serves more often as a means of allocating scarce resources than as a way to build the linkages and future inter-industry synergies documented so frequently in successful industrial districts (Feser & Bergman, 2000). For example, in Europe, the US and Australia, many ‘planned’ clusters have failed to materialise despite heavy investments by government into ‘the required infrastructure’. The implication is that although setting up the infrastructure may be paramount to the diffusion of industrial clusters, it is not sufficient in of itself to ensure a cluster’s formation and development. Underpinning these issues is the observed difficulty of Australian policy-makers to conceptualise their role within Porter’s DFM (Brown 2000; Enright & Roberts, 2001). Indeed, Brown (2000) suggests Australia’s poor IC performance is almost entirely predicated on the ‘confused role of government and its policy makers’, a statement echoed by Porter when he stated that:

…in Australia, what is less understood is that the government has some positive roles, like innovation and training, infrastructure, and things like that. I think that the real frontier is [understanding] the positive roles to be played by government whilst avoiding the distortion or intervention in competition (in Trinca, 2002:39).

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CRIC Cluster conference. Beyond Cluster- Current Practices & Future Strategies Ballarat, June 30-July 1, 2005

Refereed Paper
In order to understand the positive roles that a government can play...

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