The Role of Power in Clustering
In previous papers submitted to the ERSA Annual conference we have identified the development of networking and clustering within the context of Scotland (Danson and Whittam, 1997 and 1998) and the necessity of understanding the nature of trust and cooperation if a clustering strategy is to be successful (Danson and Whittam 1999). Building on these previous contributions and through empirical research on a typical cluster, the Scotch Whisky industry (Danson and Whittam 1999a), we have concluded that current research on clustering is missing a significant point, that of power relationships within clusters. In some respects this is hardly surprising given that... “Neoclassical economics is not without an instinct for survival. It rightly sees the unmanaged sovereignty of the consumer, the ultimate sovereign of the citizen and the maximisation of profits and subordination of the firm to the market as the three legs of a tripod on which it stands. These are what exclude the role of power in the system.” (Galbraith 1973 p.5). In other words the paradigm in which neoclassical economics is situated fails to reveal the power relationships which are apart of the typical capitalist economy.
In our study of the Scotch Whisky industry, an industry which we describe as a classic cluster, adopting a typical structure-conduct-performance approach we became all to well aware that the industry was dominated by an oligopolistic market, albeit with a competitive fringe. In this respect the Scotch whisky industry is not untypical of other ‘key sectors’ which have been identified by the development agency for Scotland, Scottish Enterprise, as suitable candidates for their clustering strategy. We then began speculating whether the imbalance of power in oligopolistic markets is a problem for strategies focusing on regional economic growth through clustering. Our understanding of clustering is that by bringing together the key players in a spatially defined area then economies can be achieved via synergy, each of the key players having a specialisation. The achievement of synergy can lead to competitive advantages for regional economies. The idea behind clustering and the non-spatially specific networking approach to regional economic development has been given a boost by policy initiatives in the United Kingdom including the publication of the recent White Paper on the Knowledge Based economy (DTI 1998). Much of knowledge creation is tacit and hence non-transferable; this therefore re-emphasises the spatial dimension of a clustering strategy.
A further development within this paper is that we argue that it is legitimate to adopt a Coasian approach to analyse clusters. This is because we believe that bringing together specialised players within one organisation can be viewed as precisely what a firm undertakes. Put another way, a firm can be seen to consist of specialist units combining to produce goods and services. We therefore agree with Steiner (1998) that a cluster can be regarded as ‘a regional productive system’ a point put more strongly by Tichy (1998 p228) “today’s clusters are a substitute for yesterday’s hierarchical firms”. An understanding of the relationships involved in clustering can be gained by utilising the methodology adopted to analyse the nature of the firm. In particular certain aspects of this literature highlight the need to understand the nature of power to comprehend the decision making process within the firm, and by extension beyond that within the cluster. Recent work originating, but radically developing, the Coasian framework, highlights, among other things, an understanding of managing relationships within organisations where power is not evenly distributed. This arises out of the definition of the firm as ... “a nexus of strategic decision-making” (Cowling and Sugden 1998 p.61) The ability to secure the outcome you desire, the strategic decision making to be in your favour, in an organisation composed of several component yet inter-related parts, involves an exercise of power. We therefore utilise this framework to help fill the gap - namely an appreciation of the power relationships which we believe exists within the current literature on clustering. It is to a brief discussion of the vast Coasian literature that we now turn. The second section will then apply this theoretical background to an examination of the role of power within what we analyse as a classic industrial structure - the Scotch Whisky industry. The penultimate section will highlight policy initiatives from this application and we conclude by identifying issues which this paper has developed and ways forward for further research.
In previous papers submitted to the ERSA Annual conference we have identified the development of networking and clustering within the context of Scotland (Danson and Whittam, 1997 and 1998) and the necessity of understanding the nature of trust and cooperation if a clustering strategy is to be successful (Danson and Whittam 1999). Building on these previous contributions and through empirical research on a typical cluster, the Scotch Whisky industry (Danson and Whittam 1999a), we have concluded that current research on clustering is missing a significant point, that of power relationships within clusters. In some respects this is hardly surprising given that... “Neoclassical economics is not without an instinct for survival. It rightly sees the unmanaged sovereignty of the consumer, the ultimate sovereign of the citizen and the maximisation of profits and subordination of the firm to the market as the three legs of a tripod on which it stands. These are what exclude the role of power in the system.” (Galbraith 1973 p.5). In other words the paradigm in which neoclassical economics is situated fails to reveal the power relationships which are apart of the typical capitalist economy.
In our study of the Scotch Whisky industry, an industry which we describe as a classic cluster, adopting a typical structure-conduct-performance approach we became all to well aware that the industry was dominated by an oligopolistic market, albeit with a competitive fringe. In this respect the Scotch whisky industry is not untypical of other ‘key sectors’ which have been identified by the development agency for Scotland, Scottish Enterprise, as suitable candidates for their clustering strategy. We then began speculating whether the imbalance of power in oligopolistic markets is a problem for strategies focusing on regional economic growth through clustering. Our understanding of clustering is that by bringing together the key players in a spatially defined area then economies can be achieved via synergy, each of the key players having a specialisation. The achievement of synergy can lead to competitive advantages for regional economies. The idea behind clustering and the non-spatially specific networking approach to regional economic development has been given a boost by policy initiatives in the United Kingdom including the publication of the recent White Paper on the Knowledge Based economy (DTI 1998). Much of knowledge creation is tacit and hence non-transferable; this therefore re-emphasises the spatial dimension of a clustering strategy.
A further development within this paper is that we argue that it is legitimate to adopt a Coasian approach to analyse clusters. This is because we believe that bringing together specialised players within one organisation can be viewed as precisely what a firm undertakes. Put another way, a firm can be seen to consist of specialist units combining to produce goods and services. We therefore agree with Steiner (1998) that a cluster can be regarded as ‘a regional productive system’ a point put more strongly by Tichy (1998 p228) “today’s clusters are a substitute for yesterday’s hierarchical firms”. An understanding of the relationships involved in clustering can be gained by utilising the methodology adopted to analyse the nature of the firm. In particular certain aspects of this literature highlight the need to understand the nature of power to comprehend the decision making process within the firm, and by extension beyond that within the cluster. Recent work originating, but radically developing, the Coasian framework, highlights, among other things, an understanding of managing relationships within organisations where power is not evenly distributed. This arises out of the definition of the firm as ... “a nexus of strategic decision-making” (Cowling and Sugden 1998 p.61) The ability to secure the outcome you desire, the strategic decision making to be in your favour, in an organisation composed of several component yet inter-related parts, involves an exercise of power. We therefore utilise this framework to help fill the gap - namely an appreciation of the power relationships which we believe exists within the current literature on clustering. It is to a brief discussion of the vast Coasian literature that we now turn. The second section will then apply this theoretical background to an examination of the role of power within what we analyse as a classic industrial structure - the Scotch Whisky industry. The penultimate section will highlight policy initiatives from this application and we conclude by identifying issues which this paper has developed and ways forward for further research.
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