How Do Agglomerations Emerge and Develop – Historical Approaches

Spatial agglomerations of similar and related economic activity often have deep historical roots. An alternative way to understand the agglomeration phenomenon is to study real agglomerations historically in order to analyze their birth, growth, saturation, decline, and possible reinvigoration.

The origin of the agglomeration in such accounts, that is, the event or action which triggered subsequent developments, sometimes turns out to be related to some more or less traditional factor of location, that is, some natural or social asset that at a certain point in time turned out to be an important location factor for a particular type of economic activity. Almost equally often, however, there seems to be a considerable amount of chance involved. Some entrepreneurial person did, for some reason, get the idea to start a certain type of economic activity. Analyses of Silicon Valley do almost without exception start out telling one particular story. This is the story of how Frederick Terman, who had moved from Massachusetts Institute of Technology (MIT) in Boston to a chair in electro technology at Stanford University, encouraged his two students, William Hewlett and David Packard, to try to find a way to commercialize an instrument which Hewlett had designed as part of his work with his master thesis. Thus, in a garage in Palo Alto in the late 1930s, a business was set up that meant the start of a process which within a couple of decades had developed into the world’s without doubt most important agglomeration in the computers, electronics, and software industry. The fact that a young woman named Catherine Evans decided to make a wedding gift in 1895 was one of the reasons why Dalton, Georgia, half a century later had become the primary US agglomeration of firms producing carpets. The literature is rather silent of the mechanisms causing these rather random historical moments which sometimes trigger the development of agglomerations, except for the fact that most new firms start out at the place of residence of their founder.

Once an activity has started in a particular place, other mechanisms come into play, contributing to subsequent developments. Thus, while agglomerations often originate in a rather random series of events leading to the start of a new firm at the place of residence of the entrepreneur; they are sustained by various forms of inertia and myopia, meaning that firms rarely relocate once they have been rooted in a place, but more importantly that a successful economic activity in one place is often followed by other similar or related activities. This could be the result from spinoffs, that is, former employees see a chance to start their own business, either as a competitor or a supplier to the original firm, but also through simple imitation. The fact that one firm succeeds is seen as a proof that this is a viable business in the particular location and it will inspire others in the neighborhood to try their luck in the same business.

In addition to pioneering, imitation, and spinoffs, various processes will tend to follow: the creation of networks between local firms; the creation of a local culture, supporting infrastructures and institutions adopted to the proliferation industry; the establishment of the place as a brand of the industry and subsequent attraction on resources from the outside (people, capital, firms). Ultimately, agglomerations of many similar and related firms will also tend to go through phases of consolidation – at some stage some firms tend to take on leading roles and often this means that they take over other firms in the agglomeration such that an initially small firm based agglomeration often ends up being dominated by a limited number of larger firms. Also, history tells us that most regional agglomerations, sooner or later, run into phases of crisis. Elements of petrifaction are often revealed at points in history when technological or other developments call for rapid restructuring. This may mean that what was once a leading center of dynamism within a given line of business ends up as an ‘old industrial region’, facing problems of renewal and finding itself being out competed by firms located else-where. Then again, there are numerous examples of how industry agglomerations manage to reinvent themselves also in this phase, such that they can actually retrieve some of their former greatness.

The above is not intended as a complete stage model of the rise and fall of industry agglomerations. It merely serves to establish as a fact that some of our knowledge on the agglomeration phenomenon comes from studying the historical development of agglomerations, and that it is possible through such accounts to gain insight into the processes which make for the evolutionary development of industry agglomerations. In addition, it is useful to keep in mind that the impact of agglomeration economies may vary considerably over time, throughout the life cycles of industry agglomeration.

Remaining Research Challenges

The agglomeration phenomenon has been a core research issue in economic geography for many years. Still there are unresolved questions that remain challenges for further research in the field. One issue stands out as being particularly important in this context. Will the continuous development of ICT eventually reduce the need for face to face interaction not just for transmitting standard information but also when it comes to complex problem solving and explorative activities? And will this in turn reduce the need for, and benefits following from, spatial agglomeration of similar and related activity?