Knowledge, market structure, and economic coordination: Dynamics of industrial districts

The industrial rise of the Third Italy has been characterized by the growth of dynamic networks of flexible small and medium-sized enterprises (SMEs) that are spatially concentrated in specialized industrial districts. This network type of coordination has been associated with horizontal, trust-based relations rather than vertical relations of power and dependency between local organizations. This would lower transaction costs (essential for local systems with an extreme division of labor), facilitate the transmission and exchange of (tacit) knowledge (and thus, learning and innovation), encourage cooperation mechanisms (such as the establishment of research centers), and stimulate political-institutional performance (e.g. through regulation of potential social conflicts). From an evolutionary perspective, the focus is on the dynamics of industrial districts drawing from current experiences in Italy. In this respect, this paper concentrates on two main features of industrial districts that have largely contributed to their economic success in the past, that is, their network organization and the collective learning process. The evolution of industrial districts is described in terms of organizational adjustments to structural change. The way in which the size distribution of firms has changed is discussed (in particular the role of large companies), how the (power) relationships between local organizations have evolved, what are the current sources and mechanisms of learning, and to what extent institutional lock-in has set in. Finally, a number of trajectories districts may go through in the near future are presented.