EACP: A Positive
Example of an Innovative Cluster
by Zoltán Szigeti
There has been widespread disagreement among economists about
the success of clusters. However, many researchers are very optimistic about the
recently formed European Aerospace Cluster Partnership (EACP). So why is it
that the Basque Aerospace cluster may be more successful on the medium-run than
most other cluster initiatives?
An issue addressed in earlier posts here is that there is no
single definition of clusters that everyone uses. A good definition is provided
by German economist Alf Lublinski, who defines a cluster as a group of
proximate firms interlinked by input/output, knowledge and other flows that may
give rise to agglomerative advantages. Clustering of economic activity holds
the potential for stimulating growth of an industry as a whole because of a
reduction in transaction costs between cluster members and the easier spread of
ideas. Furthermore, in a recent study, Wennberg and Lindqvist find that
science-based clusters have grown faster than those in other fields. In this
way, a policy that creates such a cluster in the Basque country as opposed to
Madrid could reduce inequality between the two regions while boosting Spanish
GDP.
A set of industrial innovation clusters was sponsored by the local
government in the Basque country starting in 2000 in response to a report by
economist Michael Porter which identified weakness in competitiveness of Basque
industry. Annual funding is limited at 180-220,000 euro per sector. The focus,
instead, is on the government devoting time and energy on engaging members to
communicate and interact. The selection of targeted sectors involved
public/private debate. The EACP is one of 12 clusters that was formed in 2000 and now has 38 companies, 12,000
workers, 14 research institutes and 5 universities. Its focus is on aeronautics
rather than astronautics.
In one of the most influential books in regional economics, The Competitive Advantage of Nations, Michael
Porter outlines his so-called diamond model which provides a description of the key factors influencing why particular
industries become competitive in particular locations. These factors can be
seen in the figure below and I discuss them in turn.
Competitive rivalry is enhanced by physical proximity of
firms. The goal of the EACP program is stated as promoting active cooperation
and increasing focus on competitive strategic challenges. Project participants
across fields are encouraged to compare their practices by exchanging and
analyzing case studies. This form of cooperation would ideally lead to the
establishment of a knowledge base of best practices to improve business
performance. This could be crucial as worldwide competitive pressure mounts
with new countries such as India, Russia and China entering the market.
Factor conditions are more relevant to production
clusters where proximity to raw materials is important. In the case of a
scientific innovation cluster like the EACP the relevant factor conditions are
mainly those of skilled labor and infrastructure. Due to the high concentration
of aerospace firms in the region, better matches between employers and highly
specialized individuals are formed.
Diverse participants include smaller enterprises
alongside larger firms like Aernova and Sener. The cluster is located fairly
close to Toulouse which is where Airbus is based. Also, several of the other
clusters present in the Basque region have related projects including the
automotive, telecommunications and energy clusters. There is strong cooperation
of firms with the public sector to engage actors not only within a particular
cluster but across clusters on key themes. Due to the complexity of the aerospace
industry, there is even more need for cooperation among highly specialized individuals
than in other industries. Universities provide firms with the ability to reach researchers
in their fields more easily. They also provide access to high-tech laboratories
and supercomputers.
Demand for air transport of passengers has
risen dramatically in recent years, especially in Europe with the expansion of
low-cost airlines. One of the reasons that airlines like Ryanair are able to
offer very low fares is that new aircraft they use are far more cost efficient
than older ones. This shows the importance of innovation in aeronautics. Rising
demand is the key argument for supporting innovation in aeronautics in the EU.
Before the crisis hit there had also been a trend of increasing
car ownership while in many parts great difficulties are faced when trying to
expand capacity of existing roads. The increased use of cars creates an
externality-problem meaning the more people use the highway the slower they
will travel. Hence people’s decision to drive rather than take a plane increase
time costs for others who drive on the same route. Externalities are
unfortunately usually left unsolved by free market mechanisms so that government
intervention is required. One of the ways the government can intervene in this
case is by supporting the airplane industry to provide a better alternative to
car travel.
Lastly, as oil becomes a scarcer resource its price is
expected to rise. This would reduce congestion on roads unless an alternative
energy source to fuel cars was to be found but it would also make the relative
cost of taking a plane cheaper compared to that of driving. This is yet another
probable scenario through which demand for air travel as well as transport of
goods by air would surge.
