A Rational Cluster Strategy: Manoeuvring between Market and Government Failures

Debates on the viability—and the extent of public intervention—that are requisite in the formation and development of clusters are ongoing. It seems, on one hand, that there are few cases of systematic and successful cluster creation from the ground up. On another, clusters shaped without any contribution from government are difficult to find. In this sense, the empirical evidence will not readily provide an answer to the questions, how much intervention is needed and are the existing tools adequate for creating clusters. The author analyses two basic types of market failures related to shaping and development of clusters. These are a mismatch of territorial location of production forces to existing centrifugal and centripetal agglomeration effects (positive and negative external gains, as well as underproduction of a positive external gain that influences performance of local actors. The paper also concerns possible causes, where public cluster policy produces inefficiencies (government failures). That is, it analyses the most obvious risks for policy implementation. It is argued that an efficient policy should be aimed at dealing with market failures, while the procedures and implementing algorithms — at overcoming government failures. Note: Downloadable document is in Russian.