Economists have long tried to translate the concept of comparative advantage into a measurable concept: using Belassa’s revealed comparative advantage measure makes it possible to reduce the competitiveness of an industry or a country to a single number. One can even go further and establish the causes of this comparative advan- tage, for example, does it arise because of government intervention, because of market factors, or from factors on the input side or on the output side, and so forth, with techniques such as the policy analysis matrix. The problem with these approaches, however, is that in the real world industries don’t trade; firms do; and firms operate along value chains and within clusters that are as important at deter- mining competitiveness as are the attributes of the individual firm and its environ- ment. So the appropriate question is: “What makes clusters competitive?”
This is the title of a recent (2013) volume edited by Anil Hira, a political science professor at Simon Fraser University in Vancouver. The book consists of an introductory chapter (Explaining the Success of Clusters), an overview of the global wine industry, five case studies (from British Columbia in Canada, Extremadura in Spain, Chile, Bolgheri-Val Di Cornia in Italy, and from Australia), and a concluding chapter. Professor Hira is a coauthor on the first two chapters, the conclusion, and the Canadian case study. The other authors are an interesting mix of economists, agricultural economists, and management scholars.
The book uses the global wine industry as a case study of the broader question of why some “late-developing industries [are] competitive in global markets, while others fail.” It is argued that the selection of a single industry is justified because this provides a control over the many different types of support that industries receive. The cluster approach is chosen because of its ubiquity in both the literature and practice, albeit with a twist that accounts for industrial policy perspectives and innovation theory. The wine industry is chosen because it is geographically concen- trated and the quality of the product is dependent on location, and because it is a global industry “subject to continuous technological revolutions.”
The methodology employed in the book consists mainly of a comparison of the development path of different wine industries in different parts of the world. This was done within a common framework of analysis using a common survey question- naire. The framework consists of four parts. First is a Schumpeterian evolutionary framework for innovation that traces how markets change to provide new opportu- nities. The second part is based on the idea popularized by Alice Amsden among others, namely that a developmental state has the ability to select “winners” and to support them with appropriate policy instruments. Third is the notion that econ- omic wealth is highly correlated with social capital. Finally, supply chains are becoming increasingly globalized, with the result that industries can relocate far easier than in the past. This loosening of the ties between industry and the state influ- ences the efficacy of state intervention in the economy.
Chapter 2 traces the rise of the New World producers as a force in the global wine industry that started in the early 1980s, and that was accompanied by deepening glo- balization. The wine world of the 1960s was very different from that of today. In the 1970s, the world’s biggest exporter by volume was Algeria (mostly to France), and there were no New World producers among the top ten exporters. In the first eight years of the new millennium (2001–2008), the top three exporters were Italy, France, and Spain, but now five of the top ten were New World producers (Australia, Chile, the United States, South Africa, and Argentina). The authors also provide evidence of the improvement in quality of these wines. The key role played by institutions responsible for technology development and transfer in the New World countries is highlighted. These two chapters plus the British Columbia case study make up half the book.
The case studies provide some interesting insights into what works well and what works less well. These “lessons” are summarized in the final chapter, which addresses the three questions that the book itself asks, namely, what explains the success of clusters, what are the sources of adaptability to market changes, and what tools and metrics are available to reduce transaction costs? The editor was very brave to include the first two (British Columbia [BC] in Canada and Extremadura), because in both cases the conclusion is that there is little evidence of a cluster, although the BC case may be a “proto-cluster,” while in Extremadura the negative role played by the state is explicitly highlighted. Brave, but not foolish: both these case studies provide rich texture to the conceptual framework used in the book.
The fourth case study (Bolgheri–Val Di Cornia in Tuscany) also highlights the negative role played by the state, although in this case there is solid evidence of a cluster that was able to build competitiveness up to the early part of the new millen- nium (the authors are less sanguine about the post–Great Recession prospects). The reason for the earlier success, they argue, has to be found in the role of firm-level entrepreneurship, with specific firms being responsible for introducing and diffusing new technologies throughout the region.
The Australian and Chilean case studies are more straightforward, given that their high degree of competitiveness is a fact of life. In this regard, industries around the globe learned from one another and built competitiveness through alliances among the state, industry, and private firms. Notwithstanding this success, however, the Australian case study goes further and shows how country competitiveness, built in the Australian case on dominance by global wine corporations, has been eroded everywhere, as it has become increasingly difficult to differentiate product that is transported around the world and sold in bulk, most often at steep discounts in supermarkets. So these two chapters reopen the questions posed at the beginning of the book: how do “traditional producers who created authentic wines with their own stories and identities, wines that could be traced back to a starting point and unveil their own histories” become and remain competitive in the new globalized wine market? This is a brave question, and one hopes that Professor Hira will turn his attention in that direction in the future.
University of Stellenbosch
Balassa, B. (1965). Trade liberalization and revealed comparative advantage. The Manchester School, 33, 99–123.