Much confusion has arisen in the last few years over the nature and significance of production flexibility. The literature is characterized by extreme claims, ranging from uncritical hagiographies that find flexibility everywhere to critics who deny any possible significance for it in a world supposedly dominated by oligopolies. My intention here has been to refocus attention on flexibility exclusively as a dimension of production systems following a developmental trajectory characterized by product-based technological learning. ⁷

6. It should permit, also, an inquiry into whether geographical clustering itself is helpful in avoiding lock-in or is a hindrance, and under what combinations of conventions the adjustment capacities of clustered systems are maximized.

7. There are all too many uncritical hagiographies of production flexibility in the academic and nonacademic literature. For example, flexibility is frequently conflated with flexible production technologies, yet the use of such technologies has no necessary relationship to the paradigm of flexible production as it is defined here. Flexibility is also invoked under the rubric of “strategic competition,” which is a key description of many contemporary corporate strategies, but itself requires definition and must be attached to some sort of outcome, not merely to a set of managerial processes. In the case of production networks, production flexibility is frequently equated to the existence of a “creative regional milieu;” in [the case of high technology, the latter largely corresponds, in much of this literature, to the so-called existence of universities, “good life styles,” and high levels of “entrepreneurialism.” Most of these notions are, in and of themselves, undefinable or untestable, and empirically they can be stretched at will to suit the analysis at hand (Scott and Storper 1987). In short, these analyses, in their attempt to see flexibility everywhere, would erode any theoretical significance the notion might have and make the concept meaningless for policy analysis.

Many of the critics also fail in their attempts to deny the significance of flexible production to contemporary economic development. The critics have a few basic lines of attack, all of which are based on a failure to establish clear criteria for defining production flexibility. One line of criticism centers on the existence of phenomena that supposedly countervene the flexible production paradigm. These phenomena include: the presence of big firms in final output markets and the different financial and technological capabilities of big and small firms, or the presence of hierarchical relations between big and small firms; the presence of long production runs in the plants of some industries; and the continuing existence of Taylorist labor processes in flexibly automated or nonautomated factories in many industries. While these phenomena are interesting in their own right in that they suggest that the political and social outcomes of flexible production are quite varied, the mere fact of their existence in no way calls into question the flexible production paradigm, as I have defined it, nor its significance.

A second line of attack also has its fatal flaw in a misdefinition of the flexible production paradigm and the theory of new competition, in this case to define flexible production systems so narrowly that they cannot possibly have any general import. Flexible production has been said to be limited, respectively, to the cases of: fashion goods production; flexible automation; small and medium sized firms; and traditional artisanal cultures with “deep” solidarity (preferably in Italy!). Here, the problem of competition and production flexibility is reduced to that of the industrial district, which in turn is described via a “‘thick, closed’ model abstracted from stylized descriptions of particular cases, such as the Third Italy.” At the limit, only small-firm industrial districts producing fashion goods, relying on artisanal solidarity, are included in the paradigm. No room is left for “geographical and historical variations in organization and performance” (Zeitlin 1990, 1).]

HHC: [bracketed] displayed on p. 88 of original document.

It is likely that PBTL systems will share certain characteristics identified above: (1) they are likely to be associated with some of their country’s specializations in international trade because the nature of high value-added, specialized products is not only that they have difficulty finding outlets in even the biggest domestic markets, but also that foreign demand is increasing for such cutting edge, technologically “scarce” outputs; and (2) they are likely to be organized in the form of some kind of production network, characterized by a deep social division of labor, where shifting configurations of intra- and inter-organizational linkages constitute a principal means of avoiding technological lock-in and maximizing the asset specializations and information flows necessary to PBTL. Organizational flexibility in industries competing along these lines makes possible the adjustments that must accompany learning, by minimizing their adjustment costs, allowing redeployment of capital and labor, and mobilizing specialized intellectual and manual skills.

The set of production apparatuses thus defined would include such complexes as:the automobile industry in Japan; the Italian design-intensive and craft-based industries; the microelectronics industries and downtown advanced producer and financial services complexes in the U.S.; some of the electronics, aerospace, and telecommunications complexes in France, as well as parts of the French shoe, clothing, advanced/precision metalworking industries; and parts of the French service industries in banking and civil engineering. ⁸

8. This definition encompasses a broad, but clearly limited, set of empirical cases of advanced economic development. The first condition (international trade specialization) is empirically very restrictive, and the requirement that all the other conditions be met further restricts the number of cases that can be included within the definition, even though [those conditions themselves are not subject to perfectly unambiguous specification.

At the same time, such a definition is more abstract and practical than purely empiricist approaches. Among the latter we might count those that specify precise ranges of firm size, of product scope (e.g., number of products that must be manufactured by every unit in order for it to be considered “flexible”), length of production run, and so on. These approaches are impractical for two reasons. First, no single range of values for each such criterion is theoretically adequate for every industry; what is a small run in one industry is a long run in another, for example. Second, they measure only static flexibility, i.e., direct or indirect indicators of product variety or scope, and not dynamic flexibility, or what we have identified in this paper as technological learning. In short, they miss the essential process around which the rise of flexible production systems appears to be centered, i.e., the capacity to engage in competition along lines that are radically different from those of mass production systems.]

HHC: [bracketed] displayed on p. 89 of original document.

The importance of these production systems lies in their key developmental effects. Although I cannot offer a precise assessment of their quantitative importance, the shares of total employment and output of these flexible production complexes are rising over time, the share of labor in the value of output in these sectors is much higher than average, the wage rates and skill levels for workers in these industries are far above average for their respective economies, and the price-cost margin for many products is considerably greater than average. Such production flexibility may be said to be essential, even though many - even most - units of production and many industries in the contemporary advanced economies are not organized to participate in this type of competition, because of the developmental consequences of PBTL. Social resources of capital and labor are progressively transferred into PBTL systems due to the value-intensity of their products or the quasi-rents they can earn in markets owing to their high knowledge or skill content. Moreover, where PBTL systems are devoted to production of capital goods or intermediate outputs, they often have important technological spillovers; that is, many other sectors or units of production that themselves do not conform to the definition of flexible production given here depend, for their competitive performance, on the outputs of the flexible systems (Tyson 1987). Thus, unlocking their secrets is essential to understanding a key form of capitalist development today.

Index

The Technology District as a Particular Form of the Industrial District

The industrial agglomeration has long been the subject of geographical-economic theory; firms are attracted to such agglomerations for their two forms of external economies (urbanization and localization economies). More recently, the resurgence of regional economies, which are centers of flexible production, has been linked to the concept of the industrial district, as defined by Alfred Marshall (Becattini 1987; Sabel 1989; Scott 1988; Scott and Storper 1990). Marshall (1920) noted the apparent importance of industrial localization in looking at English industrial regions of the 19th century, noticing the intangible dimensions of localization, as evidenced in his famous comment about the secrets of industry being in the air. Though Marshall made reference to the technological dynamism of English industrial districts, he did not clearly distinguish between localization as a means of reducing production costs under conditions of market uncertainty and localization as an underpinning of the technological trajectory of an industry.

I have distinguished the agglomerations at the center of PBTL industries from other kinds of industrial localizations in three ways: (1) in the economic sense that they have dynamic economies of scale, owing to the nature of technological change, that counteract equilibrium tendencies; (2) in the organizational sense that their production networks are frequently characterized neither by markets nor by hierarchies, but by other kinds of

durable interfirm relationships; and (3) in the sociological sense that they have conventions of economic life that mobilize resources and regulate interactions so as to make PBTL possible.

In this light, the concept of Marshallian industrial district, while significant in its own right, needs additional specification to distinguish those agglomerations that today lie at the heart of advanced economic development from other territorial collections of economic activities. Industrial districts based on PBTL might well be defined as “technology districts,” Examples include Silicon Valley, Modena in Emilia-Romagna, the cinema district of Hollywood, and the fashion clothing district of Paris. Though these places have widely differing sectoral specializations, different firm size distributions, and different institutional arrangements and conventions, all share the characteristics outlined above, and all are export oriented so that they account for a national trade specialization.

Index

The Limits to Globalization

Defining technology districts in this way is not simply an empirical convenience; it goes to the heart of the argument that their localized production systems are central to contemporary global economic development.

Heavily traded products can make disproportionate contributions to economic development in their regions of origin to the extent that trade grows more rapidly than output. Common misperceptions about this trade abound, however. The growth in trade and foreign investment is mainly among the advanced economies and not, as is often maintained, principally the result of decentralization of production from advanced economies to Third World nations (Gordon 1988; Lafay and Herzog 1989). While the flows of capital, jobs, and values associated with export-oriented production may be important in the Third World countries themselves, they constitute a small proportion of world trade and an even smaller share of the trade of any given advanced economy. At the present time, the U.S. imports about 250,000 automobiles per year from Mexico, but more than 2 million from Japan! Its imports of expensive, high value-added German cars are equal to its imports of cost-competitive Mexican-assembled vehicles.

Whereas trade in manufactured goods between the wealthy economies and Third World nations is heavily geared toward price, because that trade mostly concerns either standardized goods produced with mass production methods in branch plants or 1ow technology goods produced with cheap labor, trade among the wealthy economies of Western Europe, North America, and Japan is not principally based on price. Much of this north-north trade turns on quality differentials, by which I mean not simply different levels of quality in a given market, but different types of qualities of differentiated products. Only in a small number of cases is north-north trade based on dramatically different levels of efficiency in production (e.g., the Japanese automakers have less labor content in a vehicle). Quality specialization drives those parts of world trade that constitute the motors of successful economic development. In sectors whose products are traded on the basis of their qualities (i.e., where price competition, stricto sensu, is not dominant), the labor- and knowledge-intensiveness of production, the price-cost gap, and thus the qualities and numbers of jobs generated for a given increment of output are greater than for trade that depends on price competition alone. Among the developed economies, the catch-up effect for the production of standardized goods is so rapid today that no viable development strategy can be built on simply imitating the competitor in markets for technologically stable, standardized goods and services. A few cases of south-north exports (mainly the Asian tigers and the largest Third World economies such as Brazil, Mexico, and India) are examples of PBTL-based trade.

The goods and services produced in

flexible production systems as defined in this paper (i.e., PBTL systems) are particularly important for maximizing economic development possibilities in both quantitative and qualitative terms. The global economy may be seen, in this light, as consisting, in important measure, of a mosaic of specialized technology districts. Though the presence of technology districts is not the only source of trade or economic growth for a country, they are probably necessary for any country that pursues prosperity today. Stated another way, it is probably insufficient for a country’s industries to imitate only the most efficient production technologies and product designs, because technological convergence rapidly lowers the price-cost margin such that the positive developmental effects of imitation, while important, are muted. Every advanced economy must, as an element of its economic strategy today, have some PBTL systems, i.e., some technology districts.

Thus, certain key regions are at the heart of generating important kinds of economic rents in contemporary capitalism. While these key regions may be relatively few, their economic impacts on the respective national economies are likely to be relatively large. ⁹As a corollary, the image of the global economy as a sort of delocalized “space of flows” of human, physical, and financial capital controlled from major corporate headquarters manifestly fails to grasp the nature of the new competition. It fails to grasp the complexities among these global agents (especially the technology-based oligopolists) and the painstakingly constructed, territorially specific economic tissues without which they cannot function.

9. Many regions are left out, and a new configuration of territorially uneven development is clearly coming into being. Many regions are having difficulty attracting any kind of development at all; others are developing a form of cost-based flexibility, which is simply the contemporary version of attracting development based on cheap factors of production; still others are developing through careful technological modernization of existing, mature industries, where the principal motor of development is not PBTL, but rather state-of-the-art levels of productivity (the successful reconversion of mature industrial areas, as in a number of places in France or Germany). These latter regions generally support high wages but do not have rapid employment growth, and they are constantly subject to stiff cost competition. We have yet to arrive at a rigorous picture of the new pattern of territorially uneven development and the prospects for development of areas that will not become technology districts, a topic well beyond the scope of this paper.

Index

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Index

List of Tables

Table 1: Trade Composition and Trade Ratios for Main Industrialized Countries by Typology of Industrial Sectors

Table 2: Top Fifty U.S. Industries Ranked in Terms of World Export Share, 1985

Table 3: Top Fifty Italian Industries Ranked in Terms of World Export Share, 1985

Table 4: Top Fifty French Industries Ranked in Terms of World Export Share, 1985

Table 5A: The Roots of Export Specialization: PBTL vs. the Rest, United States

Table 5B: The Roots of Export Specialization: Learning/Economics of Variety vs. the Rest, Italy

Table 5C: The Roots of Export Specialization: Learning/Economics of Variety vs. the Rest, France

Table 5D: Totals for Three Countries

Table 6: The Degree of Country Specialization in HTO, DIC, and PMM Industries, 1985

Table 7: Technological Districts in the United States

Index

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