How economic clusters develop?

One of the major prongs of national industrial policy has revolved around efforts to develop special economic zones and industrial clusters. This has naturally raised the question of how such areas emerge? What public policy levers can help develop good SEZs and clusters?

In this context, an excellent article in FT about the transformation of Cambridge as an innovation hub, nicknamed Silicon Fen, and the fastest growing urban region in UK, 

The scientists and entrepreneurs based here are pushing boundaries in life sciences, agritech, computing and artificial intelligence, giving the city global influence. It has also created a centre of wealth, and over the past year had the fastest growing urban economy in the UK. A total of 4,700 knowledge-intensive companies employ 61,000 people with turnover close to $15bn. The tax generated by these companies is equal to nearly half the government budget for science, engineering and technology for all of the UK. Apple, Microsoft, Google have all moved into the area. AstraZeneca, the pharmaceutical company, made its global headquarters in the city after absorbing discoveries in the evolution of antibodies made by Cambridge-based Nobel Prize-winning scientist, Greg Winter. These helped to create Humira, the world’s top selling drug. Some 16 ‘unicorns’ — start-ups worth more than $1bn — have been created in the city. Two more are on the way. 

How did this emerge,

The transformation began in 1970 when Trinity college invested in what became Britain’s first science park, drawing in the businesses as well as research institutes. Since then, the initiatives have piled up to create a dynamic whole. Underpinning the area’s success are groups such as Cambridge Network, a membership organisation... that brings together hundreds of businesses and academics to exchange ideas. Another is Cambridge Angels, a club of 60 or so entrepreneurs connected to the city, who supported new spinouts to the tune of £28m last year. The university has itself encouraged the process with Cambridge Enterprise, an organisation formed in 2006 that facilitates collaboration and helps fund and advise academics with marketable ideas. Early connections with Silicon Valley, fostered by Hermann Hauser, an Austrian-born physicist behind many of the city’s most successful ventures, have also played a role.

And this, in my opinion, is spot on,

The overall effect... is similar to the philosophical concept of emergent properties, where an entity behaves in a way that is greater than the sum of its parts. “You look at individual molecules but they don’t tell you how rivers flow; an individual won’t tell you much about how the economy and society works,” said Mr Cleevely. “The components themselves sort it out.” Pahini Pandya, who is raising funds to turn a doctorate exploring the use of artificial intelligence in cancer testing into a start-up, said “serendipity” has been engineered into the equation. The concentration of brilliant minds all within a small, decentralised environment, facilitates “happy accidents”, she said. “One of the biggest reasons you come to Cambridge is the network you build,” she said.

The point is about creating the enabling conditions and seizing emergent opportunities, and not bother too much about how the dynamics play out.

Update 1 (10.03.2020)

Ananth has this post on the serendipitous factors that contributed to the emergence of Silicon Valley. This from NYT,

In 1955, the physicist William Shockley set up a semiconductor laboratory in Mountain View, partly to be near his mother in Palo Alto. Some employees of Shockley Semiconductor Laboratory later left the company to found Fairchild Semiconductor, and Fairchild alumni in turn founded Intel. In 1980, an Intel salesman named John Doerr quit to become a technology investor, and he helped provide seed money for Netscape, Sun Microsystems and Google, among other companies.