What is produced?

Recent research in complexity economics teaches us that what is produced in countries links closely to wealth in those countries but also to the future of growth (Hidalgo et al. 2007; Hidalgo & Hausmann 2009). This thinking has not been without consequences for adjacent disciplines. During the last few years, evolutionary economic geographers have been clearly inspired in thinking along such “qualitative” lines in their work around regional economic change and growth (Hidalgo et al. 2018). What a region is able to produce tells us a lot about the resources that regions are able to draw on in order to produce a specific thing, how advanced these resources are and how successful that makes the regional economy.

From Chapters 1– 3, we already know that regions tend to specialize in producing certain goods and services, and that they need to adjust this sooner or later in order to keep up with developments (selection). Classic accounts in economic geography have done well in terms of identifying regional specialization patterns but not quite as well at explaining their development from an evolutionary point of view.

In order to think more precisely about this, a general framework around regional specialization and economic change – an evolutionary perspective to regional economic production – is required. Some would call it an evolutionary regional “ontology”. We are looking for a framework that constructs a view of looking at the world; in this case, how production in regions actually happens, whom it involves and how it changes.

With inspiration from complexity economics on the one hand (Hidalgo et al. 2007; Hidalgo & Hausmann 2009), and the resource- based view in management on the other (Penrose 1959; Barney 1991), geographers have recently tried to refine theories to explain better the exact logics of regional economic change (Lawson 1999; Maskell & Malmberg 1999b; Boschma 2004; Neffke et al. 2018). This chapter draws on these advancements and aims to develop them further in order to achieve a comprehensive evolutionary perspective on production: a meaningful theoretical way to describe how economic production takes place in regions, and how it changes over time.

Globalization fundamentally changed how the core processes of evolutionary economic geography – the introduction of novelty, retention and selection in regional economies – work. In fact, one could argue that decreased time geography constraints – lower capability, coupling and authority constraints – together with how regional actors react to and make use of them, are globalization. Therefore, economic change, and the way in which it is a spatial phenomenon, looks very different today than it did 100, 50 or even 30 years ago.

In essence and on average, this globalization has been a good thing. Increased portability of resource uses creates problems for some regions, where the closing down of pathways has led to lock- in and organizational routines have not been able to adapt, but it creates opportunities for others that skilfully create, use and curate their regional resources. It is the global division of labour and the thousands of resource specializations around the world that have allowed the world economy to produce such endless economic variety in our time.

So far, and for many reasons, evolutionary economic geographers have been overwhelmingly concerned with what goes on among actors and technologies within regions, and how regional processes affect the introduction of novelty, retention and selection. But in a globalized economy, one with decreasing time geography constraints, it becomes increasingly difficult to understand economic change in regions without explicitly taking into account what goes on between regions. How can you explain economic change in Gothenburg or Borås, or even relevant fractions of it, without taking globalization into account as well? It is not that evolutionary economic geographers never had such thoughts, but the traditional evolutionary view was more focused on explaining how regions were still important in a globalized world, rather than investigating how regional and global aspects meet to explain evolutionary economic change. In this book, time geography has provided some tools to make the global and the regional meet in a productionist evolutionary perspective on regional economic change.

In a globalized economy, a region does not need to possess all the regional resources and locally draw the uses needed to achieve a productive capability. This insight is not new, but by combining time geography with the evolutionary view on regional economies, we have tried to make it obvious how this actually happens and how it links to regional economic change. But it also links directly to regional specialization.

More evolution!

Because regional economic change is so important for how workers make a living and is fundamental for people's welfare, one of the main goals for an economic science must be to understand how regional economic change works. So far, we have dealt with a very basic evolutionary regional perspective, trying to establish: the most important the actors of a regional economy; how these actors create, use and curate resources to derive uses from them; important aspects of regional resources; and the various way in which firms can combine resource uses to achieve regional capabilities.

However, so far we have not discussed regional economic change itself. It is time to become a bit more evolutionary in our investigation. This chapter looks at different approaches to thinking about regional economic change and how it is likely to happen.

A basic tenet of evolutionary economic geography is that the structure of regional economies condition (but do not determine) the qualitative future of the economies. To put it another way: if we know enough about a regional economy, we can estimate the probability of it changing in a particular direction in the future. In evolutionary economic geography, it is how resources are created, used and curated that provide clues to the future of regional economic change.

Regional economic change happens by degree, lying somewhere between incremental and radical change. This terminology is commonplace in the innovation literature, but it is often used in regional contexts too.

Most of the changes that take place in regional market economies are relatively undramatic and incremental. The introduction of new products or production methods, for example, builds on existing and established use of resources, such as skills and the presence of technologies and institutions (Freeman & Louça 2001; Perez 2010). During such change, established firms have many advantages over new ones. They are already familiar with production processes and the appropriate organizational modes (Tushman & Anderson 1986). In the market economy, such incremental change is part of everyday business.

However, incremental change takes many forms and occurs to different degrees. An example of regional incremental economic change is the development of a new product variety, for example a new variation on an existing car.

Globalization, regional resource uses and time geography

So far, the evolutionary perspective has acquainted us with a rather peculiar version of the world and of economic production, where the most important resources are linked to space (they are localized), and where all uses are derived from resources located in the same region. In theoretical terms, we have created a regionally endogenous model, and one that is actually not too far from the evolutionary “self- reliant” or territorially isolationist models of growth that have been influential in geography and innovation studies over the last 20 years.

For example, we have taken for granted that the car producer in Gothenburg only made use of resources in the region and their regionally derived uses in order to achieve the regional capability of car production. Links to other regions were not needed, neither in production nor in product or process development. So, if our first simplification of how production happens within the car industry was not already a stretch, the assumption that regions are “self- sufficient” in terms of resources and uses to achieve their capabilities is maybe even more so. In fact, we have already concluded that some of the most important forces for economic change in regions originate from outside the region itself. Additionally, there is globalization.

Regional economies are today part of global chains of production and are not isolated production islands (Coe et al. 2004). Intuitively we know this: the transportation of goods, people and information have become faster, cheaper and safer since the second industrial revolution. The telephone and the internet have dramatically changed the way we interact across space. Very few economic activities, from the local garage to transnational corporations, from the local supermarket to the global suppliers of knowledge- intensive services, are left untouched by the global forces of change influencing where economic activities can be located and how firms go about their business.

There are at least two implications of this development for evolutionary economic geography that are far less intuitive. The first is a “regional paradox of globalization”.

Evolutionary economic geography: how and why regional economies change across time

Some of the main ideas that this book explores are: how regional resources condition the specialization and future direction of change in regional economies (some call them “paths”); and how, with globalization, resources readily imported from other regions fundamentally influence how economic change happens. As we know, the conditioning of economic change on space and time may have positive as well as negative outcomes. The economic histories of regions enable, as much as they restrict, change. History is a mixed blessing.

Evolutionary research into regional economies provides an intellectual backdrop, or theoretical basis, to such ideas. Recent research has uncovered a great deal about how long- term regional economic change and regional growth actually happens (Boschma & Frenken 2006; Boschma & Martin 2010). The evolutionary economic geography approach works in the tradition of the Austro- American economist Joseph Schumpeter, and it recognizes innovation, technological change and the diffusion of technologies as the most important drivers behind economic change and growth. In essence, evolutionary theories work from the basic assumption that firm competition takes place in free markets, and that the economy operates under the normal institutional structures that characterize liberal market economy modes of governance. However, there is plenty to be said about the relationships between the role of government and economic evolution, and we return to this throughout the book. Even if we assume that competition is something that concerns firms in liberal markets, this does not mean that markets can provide all regional resources, nor that markets will work without regulation.

It is important to note that the evolutionary focus is not without complications. There are many competing and complementing approaches to this particular view of economic change, or at least to where it places its emphasis. Yet, much recent regional research has found value in the “neo- Schumpeterian” view.

What goes on between regions and agglomerations in a globalized economy?

In earlier chapters, we developed an evolutionary perspective that discussed and took into account many of the resources, resource uses and actors involved in regional economic change, but where the relations within and between regions were kept constant. In short, what goes on within regions was seen as far more important than what goes on between them. Our approach reflected how evolutionary economic geography has developed so far, with a keen interest in how technologies in firms and industries change within regions, but with less consideration given to how links between regions change with globalization and why this is important.

This approach to regional change becomes more difficult to defend in the long run if the aim is to understand regional economic change in our time. The problem with the restricted view of regional economies – treating regional economies as “containers” little influenced of what actually happen around them – worsens with the sort of intense economic globalization that has developed since the 1980s.

One reason for the rather restricted view of regional economies and how they develop is that evolutionary economic geography (and other “container-inclined” regional approaches) did not come up with the language to consider how relations between regions change across time and with globalization, and why and how this affects the core processes of the evolutionary dynamics of regional economies. In Chapter 9, we merged the evolutionary perspective with time geography, opening up to a world of decreasing time geography constraints, which becomes important to processes of economic change in regions. Globalization has turned regional economies into something they were not before. Economic actors operate in a world characterized by deep globalization (Dicken 2015).

At the core of globalization – as one of its indicators – are the vastly increased volumes and values of global trade in manufactured goods, and lately also in services. Between 1950 and 1999, global production volumes in merchandise increased sevenfold, but export volumes increased twentyfold and export values increased over eightyfold (based on data from World Trade Organization (WTO) n.d.a.; n.d.b.).

What resources are

In our evolutionary perspective, resources are something very fundamental. They form the basis on which regional economic change and growth are built. “Resources” also refers to a variety of different things. In this chapter, we explore some of these differences and what they mean for regional economic change.

Working with the idea of resources raises a couple of issues. It is, for instance, hard to find real examples in the business strategy literature of what resources actually are. In Chapter 4, we suggested the following definition: resources can be anything that provides the means on which organizations draw in order to achieve a capability. When trying to put this definition of resources to real use, the following problems become apparent:

• Aggregation: at what level of aggregation should a resource be defined? For example, is human capital in general a resource, or is a resource more precisely the specializations that the individuals of the labour force possess?

• Level: at what level should a resource be defined? Is a university a resource, or are the skilled engineers and the scientific knowledge it produces the resource?

The answer here is pragmatic: it depends on what aggregation and which level the resource is used in order to achieve a capability. If a specialized skill is required to develop a particular capability, that skill is the resource. If skilled engineers in general are required, they are the resource. If the university produces knowledge that is directly put into productive use, the knowledge becomes the resource.

This way of looking at resources provides considerable flexibility and at least some degree of theoretical rigour. This definition of resources is also productionist, in the sense that we are only concerned with resources that can be used in economic production.

What is happening within regions and agglomerations?

The first argument in Chapter 7 was that incremental change is common in regional economies. Such change varies in degree and can be studied on several different levels within regions: at the levels of resources, uses and capabilities. Second, incremental changes often take the shape of related regional diversification. In Jane Jacobs’ words, new work develops from parent work in regions because of learning processes and what the old work “suggests” (Jacobs 1969). This is also one of the main reasons why so much regional development is path dependent. The regional resource repertoire and the specificity of regional resources condition the direction in which new work develops.

Resource building, diversification (i.e. the expansion of regional capabilities) and change are strong processes in the capitalist economy. Nevertheless, they seem to work in very different ways in different places, and regional economies look very different to one another. A key reason for this is that the regional resources themselves that are built, used and curated across time are very different from place to place. For example, informal institutions, such as the entrepreneurial spirit or cooperative norms, differ across different regions. This affects how and where resources can be combined into bundles and achieve capacities.

However, in order to understand why economic change looks so different in different regions, we need to explore another important geographical aspect that so far has been untouched. In this chapter, we investigate what happens in agglomerations, and how this effects how regional economic change happens. Later, the issue of what goes on between agglomerations, and how that affects regional change, is explored.

The main issue that we explore in this chapter is why regional change is essentially regional in nature. Certainly, regions have different resource repertoires, and some regional resources are not portable whereas others are, but is that all that differentiates regions that build resources and diversify more productively from those that do not? In this chapter, we explore ideas about what agglomerations of economic activities do to economic change and learn what research has to teach us in this regard.

Change in regional resource repertoires

Regional resource repertoires are not static. They change, expand and contract over time. For firms, the resource- based view (Barney 1991) has a lot to say about how resources develop. Inspired by that discussion, in this chapter we investigate how regions create, use and curate their resources.

The right terminology is difficult to find here, because sometimes resources are created in a region (e.g. by a firm) and sometimes they are created by the collective effort of the region. Regions, of course, have no agency by themselves when it comes creating, using and curating resources. However, we follow the standard practice and language of economic geographers when we talk about regional resource creation, use and curation, meaning that resources are created, used and developed by actors, such as firms or public organizations, in a region.

We have already seen how deriving uses from resources requires entrepreneurs and firms to make conscious decisions to do so. The creation and curation of resources require active decisions by regional actors too. Usually, regional resources do not appear out of the blue, and keeping them up to date requires a great deal of effort. Therefore, we will devote special attention to the role that firms and the public sector have in creation and curation. This is an important issue, because previous research in evolutionary economic geography has been criticized for being imprecise when it comes to who actually promotes path- dependent change in regional economies (Hassink, Isaksen & Trippl 2019). In the following we develop one answer to that question.

Figure 6.1 gives the roadmap for the chapter. First, regional resource creation and its varieties (endogenous and imported) are considered together with the intention involved. Thereafter, we look at the consequences of the use or non- use of regional resources: resource idleness, learning- by- using and resource depletion. We end the chapter by considering resource curation: the ways in which regions have to be looked after and cared for in order to remain as attractive components in bundles that achieve regional capabilities.

In neo-functionalist terms, EU social policy appears to be a spillover from economic integration. It has expanded as the deepening of the single market through the four freedoms has brought on new regulatory needs at a European scale. Social regulation can be understood as the hard core of the EU's social governance. Its purpose has been to mitigate the negative effects of economic competition and create a level playing field (i.e. avoid the distortion of com¬petition because of contrasted social standards) between European countries with diverse levels and models of social protection. Whereas harmonizing social rules quickly proved to be impossible, European regulation has helped create new transnational social rights. A historical institutionalist approach (Pierson 1996: 188) helps to understand how some unintended consequences of past decisions combined with activism from socially minded actors have fed the con¬tinuous growth of social regulation in the EU. Today, the body of EU social law amounts to over 160 legally binding acts.1However, the EU's regulatory activity has slowed down since the mid-2000s, as shown in several studies (Graziano & Hartlapp 2019

; Pochet & Degryse 2017). Although the absolute number of social regulations and directives has not declined significantly, recent legislation tends to focus mainly on tech¬nical changes or minor revisions. The number of directives adopted and new initiatives to address new problems has fallen significantly since the end of the 1990s. On the other hand, the number of directives proposed but not adopted has also dropped considerably, which seems to indicate that the Commission has been less and less adventurous on the social front, proposing a text only when it is sure it has the backing of a majority in the Council and Parliament. Furthermore, a careful analysis of the nature of the regulation adopted shows that the EU's legislative output has been increasingly geared towards flanking the single market – especially by regulating workers’ mobility – rather than towards social policy objectives per se (Hartlapp 2019). With the inclusion of social issues in the Lisbon Strategy proclaimed in 2000, the lesser dynamism of social regulation has gone hand in hand with the rise of soft coordination through non-binding recommendations, benchmarks and peer review.

As in other federal systems such as the United States or Canada, social policy within the EU is not the purview of a specific institution but is shaped in a fragmented way by a multiplicity of actors (Leibfried & Pierson 1995). These sometimes form alliances in public policy networks and communities and depend on each other in the framework of the multi-level governance that characterizes the EU. Yet, beyond legal prerogatives and institutional dynamics, the making of EU social policy is the product of underlying political struggles. As highlighted in the previous chapters, the area of social policy has always been one of symbolic projection for normative debates around social justice and soli¬darity among European citizens and states. Thus, the pursuit of a (more) “Social Europe” has been historically supported by some actors and resisted by others. And those struggles have been in flux.

In the early days of EU integration in the 1950s and 1960s, entrepreneurs of social policy at the EU level actively promoted the emergence of a distinct body of EU social law (Fertikh 2016). Although representatives of trade unions were relatively marginalized in the new architecture of the EEC (compared to that of the ECSC), lawyers, experts and officials within the Directorate General (DG) of the European Commission for Employment, Social Affairs and Inclusion (EMPL) have drawn on specialized knowledge to build a transnational policy field, which was nevertheless perceived as relatively weak compared with other areas such as competition policy, finance or trade. These actors engaged in inter¬pretation struggles over the Treaty of Rome, intrinsically rooted in economic liberalism with the assertion of the four freedoms, and progressively succeeded in asserting a space for embryonic European public policy in the social realm (Fertikh 2017). Some 60 years on, what does it look like?

Today's literature is populated with contrasting assessments of the EU institutions and their role vis-à-vis social policy. The EU Commission has been depicted as a social policy entrepreneur (Pierson 1996; Wendon 1998) or as an agent focused on market-making and liberalization (Crespy & Menz 2015a).

Only very few citizens are aware that the EU plays a role in social policy. This is because of the multi-level and piecemeal nature of European social policy-making. From a legal perspective, the EU can only act in a limited number of areas as specified in the TFEU. The literature offers contrasted accounts of how relevant the EU's role is. The EU intervenes in a range of policy areas, but through differentiated procedures and modes of governance implying various degrees of constraint for member states. The roots of European social policy lie in provisions facilitating the free movement of workers and, later, of citizens at large (e.g. the coordination of social security). Labour law and non-discrimination (including equality between men and women) have progressively also become important areas for European law-making. The EU has promoted territorial and social cohesion through cohesion policy. Dedicated structural funds ensure a redistribution from wealthy to poorer regions through the EU budget. Since the 2000s, welfare state reforms (labour markets, education, pensions) and policies related to poverty and social inclusion are coordinated through soft mechanisms relying on benchmarking and the diffusion of best practices. Every sequence in the history of EU integration has driven new normative views, discourses, pol¬icies and institutional developments in social policy.

Yet, European social policy is in no way developing into a European welfare state. The bulk of social policy remains the prerogative of national states and the various types of welfare states (whether continental, Scandinavian, liberal or southern) have proved very resilient. The resources available from the EU budget are in no way comparable to national ones. Most importantly perhaps, social policy at the EU level cannot be considered as an autonomous policy area isolated from economic policy. From the outset, it has been subjected to the imperatives of economic integration, free movement and monetary integration in particular. Thus, it is of paramount importance to consider the interaction between EU economic and social policy. As the introduction to this book sets out, experts on social policy in the EU disagree on the effectiveness (whether it is irrelevant or catching up) and the nature (progressive or dangerous) of the EU's social action.