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Co-operation and competition in production and exchange: the “district” form of industrial organization and development

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Abstract

This paper considers the role of co-operation and competition in production and exchange—and the “district” form of industrial organization and development. It examines Alfred Marshall’s theory of industrial districts—localized groups of small firms and their suppliers that were at the heart of Britain’s industrial development. However, with the emergence and growth of very large and successful vertically integrated firms—and as the conventional wisdom evolved to view large size as the next stage in industrial evolution—the small firm sector was progressively marginalized. In this process, Marshall’s dynamic and evolutionary approach to industrial organization was abandoned. However, the discovery of competitively successful agglomerations of small firms in Italy during the 1960s served as the motivation for construction of a new theory of the “Marshallian” industrial district, pioneered by Giacomo Becattini and Sebastiano Brusco. The success of these modern industrial districts in securing inter-firm co-operation and channelling their joint efforts towards quality upgrading and product and process innovation, at a time when large firms and the “Fordist” mass production model were generally in decline, brought them to the attention of the international research and policy community. Since then, the literature on this form of industrial organization has proliferated; and Marshall’s methodology and theory has proven remarkably resilient in explaining the dynamic, non-equilibrium processes involved in their development, evolution and performance over time.

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Notes

  1. “Liberal economics” is a term for the classical and neo-classical economic theories that emphasize individualism in free markets and laissez-faire policies in which the government’s role is limited to the provision of support services.

  2. As the British industrial revolution progressed, and with the development of the factory system and market expansion, Mill (1848) argued that in response to increases in the size of the market, firms would have incentives to increase their scale of production, which would undermine competition (Book 1, Chapter 7).

  3. Adam Smith wrote: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” (Smith 1999 [1776], p. 232).

  4. See also Cairncross (1997), Dore (2001), O’Brien (1992), and Reich (2001).

  5. Contemporary analyses of industrial districts put greater stress than did Marshall on the collectivist and institutional basis for successful coordination. See, for example, Brusco and Sabel (1981), Brusco (1982), Sengenberger et al. (1990), and Amin and Thrift (1994).

  6. Becattini (1990a) distinguishes two Cambridge Schools of Economics. The first is the one surrounding John Maynard Keynes and his followers, including, among others, Richard Kahn, Joan Robinson, Gerald Shove, Nicholas Kaldor, Austin Robinson and Piero Sraffa. The second—the “Old Cambridge School”—surrounds Alfred Marshall and his students who studied and developed research fields within industrial economics. These included, among others, Austin Robinson, S. C. Pigou, D. H. Robertson, Arthur Bowley, Sydney Chapman, D. H. MacGregor, Charles Sanger, C. R. Fay and Philip Sargent Florence.

  7. The debate revolved around the questions of (1) whether increasing returns exist at all; (2) whether they arise out of internal economies of scale or Marshallian external economies; and (3) whether they are compatible with competitive equilibrium. See, for example, Robertson et al. (1930).

  8. This section draws heavily on invaluable input from Gabi Dei Ottati on Giacomo Becattini and Margherita Russo and Anna Natali on Sebastiano Brusco.

  9. However, “[t]he industrial districts that the district interpretation of Italian development identified in economic reality were not simply replicas of the nineteenth century English industrial districts on which Marshall had worked: the reference to districts being ‘Marshallian’ related to a particular analytical tool, not to an empirical identification. An industrial district can be said to be a ‘Marshallian industrial district’ if it is so identified by empirical research using methodological criteria derived from the Marshallian analytical tool” (Sforzi 2015, p. 16).

  10. See Becattini (1962) for Italian title and full reference.

  11. In particular, Economics of Industry (1879) with Mary Palley Marshall, Principles of Economics (1890) and Industry and Trade (1919).

  12. See IRPET (1969). Becattini had set-up IRPET in 1968.

  13. See, especially, Young (1928).

  14. Brusco (1982) was translated from the Italian into English by Jonathan Zeitlin.

  15. See, for example, Hirst and Zeitlin (1988, 1989), Kern and Schumann (1987), and Sengenberger and Loveman (1988).

  16. This idea is central in all of Becattini’s works on industrial districts; and it is also at the center of Brusco’s work on the Emilia-Romagno model. Although he does not use the term “embeddedness”, Brusco develops the idea of the “rules of the game” in industrial districts (Brusco Brusco 1982, p. 174).

  17. In the sense that it is used here, trust simply means the reliance on and confidence in the truth, worth, reliability of a person or thing (Collins Concise Dictionary 1995).

  18. A term that no doubt Marshall would have appreciated, although he would probably have preferred “organizational thickness”.

  19. See, for example: Amin and Thrift (1992), Asheim (2000), Harrison (1992), Harrison et al. (1996), Keeble and Wilkinson (2000), Markusen (1998), Morgan (1997), Porter (1998), and Scott (1988a, b, 1998, 2001).

  20. For studies of the evolutionary path of localized productive systems, see, for example, Scott (1988b) and Enright (1998). For studies of district “life-cycles”, see, for example, Swann (1998).

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  1. Birkbeck, University of London, Malet Street Bloomsbury, London, WC1E 7HX, UK

    Sue Konzelmann

  2. Emeritus Reader in Economics, University of Cambridge, Cambridge, UK

    Frank Wilkinson

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  1. Sue Konzelmann
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Konzelmann, S., Wilkinson, F. Co-operation and competition in production and exchange: the “district” form of industrial organization and development. Econ Polit Ind 44, 393–410 (2017). https://doi.org/10.1007/s40812-017-0077-6

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