The Impact of the Dutch Biopharmaceutical Industry on Regional Economic Development in the Randstad

The nature of economic development in advanced and developing economies alike has changed dramatically during the last generation as high-technology/knowledge-intensive industries have had a profound impact upon the way that people work and live. As The Economist has noted: “America gets more than half its economic growth from industries that barely existed a decade ago—such is the power of innovation, especially in the information and biotechnology industries.” The first phase of this revolution stemmed from the dramatic impact of information technologies such as the personal computer, software, the Internet, and now wireless communications. During the 1990s, an unprecedented stock market boom in the United States was driven by investment in these technologies. India, a country as poverty-stricken as any, has become an economic power because of its ability to effectively participate in the global information technology value chain. However, at present, the most important and the fastest growing segment of this emergent knowledge economy is biotechnology. While scientific knowledge as a whole has been doubling every ten years, it has been doubling every five years in the field of biology. The result has been a technological renaissance in biotechnology-related fields ranging from bioinformatics to biopharmaceuticals. This biotechnology-driven renaissance is reflected in the dramatic race to map the human genome and in the many new drugs that are influencing mankind’s quality of life. The astounding rate of growth in this industry and a general desire to partake of its lucrative economic bounty has led national and regional governments to focus on the development of biotechnology clusters as a catalyst for regional economic development. Indeed, a survey of 77 local and 36 state economic development agencies in the U.S. reported that 83% have listed biotechnology as one of their top two targets for industrial development. For example, St. Louis, Missouri has sought to become a player in the field of agricultural biotechnology by creating a biotech cluster in the heart of its long-neglected inner-city. Outside the United States, Singapore has launched Biopolis, an 18.5 hectare, $300 million science park devoted exclusively to biomedical research and development; while neighboring Malaysia is doing the same with its BioValley Initiative. Thus, this keen focus on biotechnology is increasingly reshaping the physical environment of cities—both poor and rich—as they seek to become players in a lucrative industry of the future. Recently, continental Europe has also made a bid to become a dynamic player in the biotechnology industry as evidenced by the BioPartner Initiative of the Netherlands. How is this industry affecting the urban milieu? What is the impact of a particular high-technology industry—biotechnology--on regional economic development? Why have some areas been more successful than others in cultivating and developing biotechnology clusters? This paper will examine the evolution of the Dutch biopharmaceutical industry and its impact on regional economic development (real estate and labor markets) in the Randstad. Hypothesis: This dissertation is an examination of the consequences vis a vis regional economic development of biopharmaceutical clusters in the Randstad region of the Netherlands. These clusters are at different stages of evolution in respect to more advanced areas such as the United States and the UK; and are affected by a distinct policy environment. The clusters to be analyzed are situated in the polynuclear area of the Netherlands’ Randstad. The historical dynamics of the biotechnology industry as well as the specific costs and benefits that it imposes upon the labor and real estate markets in this area will be assessed. The central hypotheses of this study is that the unique characteristics of the biotechnology industry is leading to gentrification (real estate impact); and that the biotechnology industry promotes bifurcation in the urban labor market as it enhances job growth amongst the highly skilled but is not a significant source of employment for the low and semi-skilled. The aforementioned gentrification hypothesis is built upon the anchor tenant hypothesis posited by Prof. Maryann Feldman in “The Locational Dynamics of the U.S. Biotech Industry: Knowledge Externalities and the Anchor Hypothesis.” Therein Dr. Feldman argues that an anchor tenant’s brand recognition creates an externality for smaller stores who realize greater sales volume than they would in other locations. The value of this externality is reflected in higher rents the average tenant pays in comparison to the rent paid by the anchor tenant. This form of price discrimination reflects a willingness of the average tenants to pay a premium for location near the anchor tenant. Universities, hospitals and other components of the biotechnology cluster have the capacity to play the role of the anchor tenant, which is having a dramatic impact on the real estate and labor markets in the areas around biotech clusters.