History Matters: Path dependence and innovation in British city ...

Part 1: Introduction
1.1 History matters
A number of authors have shown that
capitalist economies evolve through long
cycles of recession, recovery, growth and
decline (Kondratieff 1935; Schumpeter 1939;
Mensch 1979), and that these cycles develop
differently in different places (Marshall
1987; Hall and Preston 1988). Such insights
led attention initially to focus on whole
regions such as Silicon Valley in California,
Baden-Württemberg in Germany and Emilia-
Romagna in Italy. It later became apparent
that functional city-regions were the main
geographic concentrations of economic
activities. This placed them in the front line
of globalisation where they had to remain
competitive to survive and thrive.
As they became increasingly exposed to
international competition, some cities adapted
much better than others. Thus while some
persisted with their traditional industries until
they were overtaken by foreign competition
or technological change, others seemed better
able to re-invent their old industrial activities
or create new ones. We are mainly concerned
with the reasons underlying such long-term
divergence in the fortunes of British cities.
We argue that an evolutionary economics
approach is key to understanding such
long-term economic change. There are four
strands within a local interactive system
which, for the purposes of clarity, we examine
sequentially. The first strand includes the
sectoral development pathways – the key
industries – that developed in different cities
over decades and centuries. They represent
the economic, social and institutional histories
of city economies that have brought them
to where they are today. They determine
what is immediately possible in a given city’s
economy. This is partly because they determine
much of the second strand of analysis which
includes the knowledge assets or absorptive
capacity of the local economy. These assets –
including higher education and R&D – have
become increasingly significant as the role
of knowledge in contemporary economic
performance has increased. The third strand
of analysis is concerned with the dynamic use
of knowledge to create new products and
services. Here the local innovation system plays
a critical role in combining local and external
knowledge to inject varying degrees of novelty
into local economic activities. This system plays
a key role in selecting from the historically
determined range of possible pathways those
that develop in the future. The more radical
innovations arising from this system sometimes
generate new development pathways, where
new types of industry or economic sector are
involved. This new path creation is the fourth
strand of our analysis.
The interactions between such pathways, their
knowledge assets and their local innovation
system determine the long-term success
or failure of their economic sectors. They
therefore decide the nature of the sectoral
and structural pathways followed in particular
city-regional economies. In our study, cities
like Leeds, Middlesbrough, Newport, Norwich,
Swansea and Wakefield have experienced
decline in many of their industries inherited
from the Industrial Revolution. By contrast
Aldershot, Cambridge, Oxford, Northampton,
Reading and Warrington, relatively
unencumbered by their industrial heritages by
the early 1980s, have prospered.
We adopt an evolutionary economics approach
to understand such long-term developments
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