'Old Economy' Inputs for 'New Economy' Outcomes: Cluster Formation in the New Silicon Valleys

Abstract

This paper discusses the results of a two‐year research project on the sources of success in regional clusters of entrepreneurship and innovation like Silicon Valley. Our project has studied a number of locations, most of which have shown spectacular rates of growth of information and communcations technology‐related activities during the 1990s. Our case studies comprise some emerging regions, notably in Ireland, India, Israel and Taiwan, along with more advanced areas like Northern Virginia in the US, Cambridge, UK, the Scandinavian countries and the Silicon Valley 40 years ago by way of the memory of one of its ‘father founders’, Gordon Moore. Through visits, interviews and other materials, we uncovered some regularities about the determinants of success of these entrepreneurial‐led models of economic growth. We find that the economic factors that give rise to the start of a cluster can be very different from those that keep it going. Agglomeration economies, external effects and ‘social increasing returns’ of any sort arise almost naturally after a cluster has taken off. But the most difficult and risky part is to get the new clusters started. At that stage, ‘old economy’ factors like firm‐building capabilities, managerial skills, a substantial supply of skilled labor and connection to markets were crucial for the take off of these ‘new economy’ clusters (including Silicon Valley 40 years ago).