bathelt resources in economic geography.pdf

Environment and Planning A 2005, volume 37, pages 1545 ^ 1563

DOI:10.1068/a37109

Resources in economic geography: from substantive concepts

towards a relational perspective

Harald Bathelt

Faculty of Geography, Philipps-University of Marburg, DeutschhausstraÞe 10, D-35032 Marburg,

Germany; e-mail: bathelt@staff.uni-marburg.de

Johannes Glu « ckler

Institute of Economic and Social Geography, Johann Wolfgang Goethe-University of Frankfurt/

Main, Postfach 111932, DantestraÞe 9, D-60054 Frankfurt/Main, Germany;

e-mail: glueckler@em.uni-frankfurt.de

Received 8 April 2004; in revised form 29 August 2004

Abstract. Resources are crucial for the technological and economic development of firms in spatial

perspective. In this paper we contrast two ways of conceptualizing resources, and argue that a

conventional, substantive understanding implies a number of shortcomings which can be overcome

through the application of a relational conception of resources. In examining four types of

resourcesömaterial resources, knowledge, power, and social capitalöour argument is that resources

are constituted in a relational way in two aspects. First, resources are relational in that their

generation, interpretation, and use are contingent. This depends on the particular institutional

structures and social relations, as well as on the knowledge contexts and mental models of the agents

involved. Second, some types of resources, such as power and social capital, are also relational

because they cannot be possessed or controlled by individual agents. They are built and mobilized

through day-to-day social practices. Individuals or groups of agents may appropriate the returns, but

not the resources themselves. We conclude that a relational concept reflects the contextual and

interactive nature of the selection, use, and formation of resources. This offers new insights into the

explanation of heterogeneity in firm strategies and trajectories, as well as regional differences in

the development of localized industry configurations, such as clusters.

1 Introduction

Firms produce outputs by procuring and transforming inputs, yielding value added.

In conventional economic analysis, three types of inputs or production factors are

distinguished: land, labor, and capital. Recent economic structures and practices in

the reflexive economy (Storper, 1997) clearly demonstrate, however, that the existing

heterogeneity of strategies and technological developments adopted by firms in varying

spatial contexts cannot be explained by differences in the composition and use of

production factors alone. Strategic differentiation, innovation, organization, and the

economic success of firms are strongly influenced by other factors which can also be

conceptualized as `resources' to be used in the production process. Aside from machi-

nery, equipment, and financial capital, other forms of capitalösuch as experience,

knowledge, social capital, and poweröexist and enter the production process. These

resources constitute an additional challenge in the production process as they are not

purely technical in nature and require much more than technological expertise. They

are socially constructed entities which rely on collective processes of resource genera-

tion and application. This shift has fundamental consequences for the exploitation and

use of resources, as well as for our understanding of how they operate.

In this paper, the analysis of resources is shaped by a relational approach to

economic geography which focuses on the analysis of economic interaction in spatial

perspective (Bathelt and Glu« ckler, 2003a; 2003b; Clark and Tracey, 2004). `Economic

action' is viewed as social action which is contextual in that it is always related to other

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H Bathelt, J Glu « ckler

actors and shared institutional environments. The focus of attention here is on

economic and social relations, processes of organizing, problem solving, and innova-

tion, as well as on the creation of informal and formal institutions (see also Ettlinger,

2003; Massey, 2004; Murphy, 2003; Yeung, 1998; 2002). (1) Our main argument in this

paper is that a relational conception is more appropriate than is a substantive concep-

tion in the understanding of the generation and application of resources, as well as in

the representation of the variety and heterogeneity of different uses and values assigned

to resources in the reflexive economy. This relational perspective is not limited to

analyses at the microlevel. Instead, the aim is to combine and integrate microtheo-

retical and macrotheoretical considerations through the concept of institutions. (2) On

the one hand, institutions shape economic practices and thus should be studied at the

level of the economic actor (Hodgson, 1998). On the other hand, this institutional

context prestructures economic interaction to some extent, and motivates ongoing

relationships between agents and enables these to be reproduced. The economic agents

we focus on in this paper are the individuals and collectives of individuals in firms

who interact in local and global production environments. From a spatial perspective,

we apply our arguments to geographical clusters and other localized production

configurations, as well as to international production networks.

In the remainder of the paper we aim to explore different conceptualizations

of resources, and emphasize the difficulties involved in treating collectively constituted

resources in substantive terms. In the main section we introduce four types of resourcesö

material resources, knowledge, power, and social capitalöand discuss the conse-

quences of a substantive versus a relational understanding for each resource type. We

show that a substantive understanding of resources is inadequate in a number of ways,

and that these shortcomings can be overcome with a relational conceptualization.

In the final section we summarize our arguments and demonstrate the potential of

applying a relational concept in spatial perspective, using the geography of the firm as a

reference point.

2 From a substantive towards a relational understanding of resources

Human action is relational in character because individuals do not act atomistically,

without context (Granovetter, 1985). Economic decisions and their consequences

are always shaped by the structure of social relations with other actors and shared

institutional conditions. This applies to the selection of goals, the identification of

opportunities for a particular action, and the reference frame for the interpretation

of alternative actions, as well as to the course of action itself. In the following

subsections, we apply this view to the analysis of resources and suggest that our

conception of resources should be shifted from a substantive towards a relational

(1)

Social theory has increasingly tended towards a nonessentialist conceputalization of social and

economic practice. A relational approach to economic geography is linked to various complemen-

tary streams of thought from economics, sociology, and geography. Most importantly, relational

economic geography draws on the embeddedness and network literature (for example, Granovetter,

1985; 1992), on institutional economics (for example, Hodgson, 1998; Nelson and Winter, 1982), and

the new economic geography (for example, Storper, 1997). Further important examples of non-

essentialist perspectives can be found in contributions such as those on the cultural turn (for

example, Lee, 2002; Thrift, 2000) or the institutional turn in geography (Amin, 1999; 2002).

(2)

The conceptual foundations of relational action are in fact based on an institutional perspective

(Amin, 1999). An important result of this perspective is that the goals and preferences of human

action are not predetermined through the assumption of rational, utility-maximizing individuals:

``Human agency is neither uncaused nor generally predictable'', as Hodgson (2003, page 171) puts

it. Further, different layers of institutions can exist within a society which support or work against

each other. Storper (2004), for instance, argues that the relation between `community'-level and

`society'-level institutions is decisive in understanding why some places grow faster than others.

Resources in economic geography

1547

understanding. This is done by systematically pointing out the limitations of the

conventional, substantive view. We argue that resources are used and/or produced in

a relational manner, that is, in context-specific social processes. This leads to resource

heterogeneity, which then becomes the basis of competitiveness and economic success.

We show that the generation and use of resources relies on interactive learning and

decisionmaking, that it is shaped by shared interpretative schemes, and that it can easily

change, depending on the context. The ultimate use and value of resources is contingent

on this. Moreover, we demonstrate that relational resources cannot always be appro-

priated by individual actors. In what follows, we explore four types of resource which

are increasingly important in the technology-intensive and knowledge-intensive economy:

material resources, knowledge, power, and social capital. The goal of our argument is to

illustrate the relational character of each of these resource types (table 1) and to emphasize

the consequences of this understanding in spatial perspective.

Tab l e 1. Substantive versus relational understandings of resources.

Resource type

Substantive understanding

Relational understanding

Material resources

Resources as production factors

characterized by predefined

input ± output relationships

Resources as bundles of possible

services characterized by

contingent returns

Knowledge

Knowledge as a precondition for

economic success characterized

by inherent, predetermined

consequences

Knowledge as a (frequently

unanticipated) result of collective

interpretations and recombinations

Power

Power as the inscribed capacity

of an actor to dominate by

means of resource control

Power as the social practice of

building networks and enrolling

other actors in joint projects

Social capital

Social capital as the universal

capability of an actor to exploit

networks according to her or his

own goals

Social capital as the set of

opportunities which results from

the existence of social relations

with other actors

2.1 Material resources

When we talk about material resources we usually think of raw materials, intermediate

products, machinery, and equipment, as well as the different kinds of infrastructure

which are used by firms. These resources are limited in terms of their availability, and

are used up through consumption. (3) There is therefore a shortage problem, which

drives economic action according to neoclassical economics (Peteraf, 1993). From a

substantive view, these resources are production factors which can be acquired by firms

and which are exploited according to the firm's needs. In a relational understanding,

material resources are not automatically viewed as factors with an inherent use-value

and predetermined application. In this view it is acknowledged that resources can be

used in many different ways for different purposes. The use-value of a resource depends

upon the social context within which goals and capabilities are shaped. Resources

can be defined as bundles of possible services, as suggested by Penrose (1959). It is

necessary to differentiate between resources and their respective services because it

is possible to acquire and to characterize resources independently from the purpose

(3)

In this respect, there is a remarkable difference between material resources and the other

resource types discussed. Knowledge, power, and social capital do not diminish when they are

used: rather, their application can strengthen and extend them, as new knowledge, power, or social

capital are generated.

1548

H Bathelt, J Glu « ckler

they serve. Only the particular use determines the way in which they enter the production

process as inputs, how valuable they are, and in what way they might strengthen a

firm's competitiveness. Penrose (1997, page 31) prefers the term `resource' over `produc-

tion factor', as the latter does not allow for a distinction between the factor itself and

its possible services: ``Strictly speaking it is never resources themselves that are `inputs'

in the production process, but only the services that the resources can render.''

A relational concept of resources has consequences for our conceputalization of

firms. In conventional economic analysis, firms are defined in terms of the outputs

they produce. In a resource-based view of the firm, in contrast, a firm is defined

according to its inputs. In this view, firms are defined as bundles of resources and

can be characterized by their specific resource profile (Mahoney and Pandian, 1992).

From this understanding, we can analyze how different combinations of resources shape

a firm's economic success (Wernerfelt, 1984). Only by distinguishing between material

resources and their multiple potential applications is it possible to understand the

heterogeneity of firms, their output specificity, and different strategies.

Resources are not only bundles of potential services, but are also assets for future

returns. Firms do not necessarily gain higher returns than others because they have better

resources. Their better performance is also a consequence of using their resources in a

different or superior manner (Maskell, 2001a). The difference in return between the best

and second-best service of a particular resource can be defined as its `quasi-rent'

(Mahoney and Pandian, 1992). Here, the distinction between a substantive and relational

understanding of resources becomes clear. Whereas in a substantive understanding

resources are defined as objective production factors characterized by predefined

input ^ output relationships, in a relational understanding the multiplicity of potential

services of these resources is emphasized. The particular use of a resource does not only

depend on its physical characteristics but is also influenced by a number of contextual

conditions, some of which are described below.

(1) Firm-specific competencies. Each firm has a stock of knowledge, capabilities, and

experience which it has developed over time and which shapes the identification of

particular uses for the resources at hand. It is through these specific competencies that

firms are able to integrate resources into their production processes in a particular way.

The set of accumulated knowledge of a firm can also be viewed as a resource.

(2) Mental model. The competencies of a firm are part of its overall mental model, or

dominant logic (Prahalad and Bettis, 1986). This interpretative framework impacts the

way in which existing competencies are used, and enables a joint understanding of

knowledge pools. The interpretations which are attached to the internal and external

information flows of a firm indicate its organizational capabilities. Routines which have

been developed over time, and through which new information can be processed and

transformed into action, shape the interpretations. According to Nelson and Winter

(1982), organizational routines are the `skills' of a firm. Through the development and

diffusion of new interpretative schemes, it is possible to reinterpret existing knowledge

and to attach it to new uses, or to find new, innovative uses for existing resources.

(3) Market conditions. The potential returns of an innovative use of resources also

depend on the productive opportunities and constraints in the market (Penrose,

1959). These productive opportunities define which specific competencies can be com-

bined with, or adjusted to one another for success. This depends on the overall

competitive, demand, and supplier ^ customer environments capable of supplying inno-

vative resource applications and of processing the resources further. External market

conditions may also constrain the development and use of resources, depending, for

instance, on the market power of key players or institutional constraints such as

dominant technological standards.

Resources in economic geography

1549

The aforementioned considerations clearly demonstrate that a firm's products,

strategies, interactive capabilities, and technological trajectories can neither be

explained by nor be reduced to the mix of material resources used. On the contrary,

the productive and innovative use of resources depends upon the combination of

adequate resources, the competencies of a firm, its mental model, the existing market

conditions, and the socioinstitutional context.

2.2 Knowledge

The distinction between resources and their possible services emphasizes that the value

and use of material resources are not predetermined, but are contingent and depend

on their particular social context. Hence substantive concepts of resources cannot

explain how firms gain competitiveness and become innovative. To understand this

fully we have to consider the processes of knowledge generation both within and

outside the firm (Maskell, 2001a). Interdependencies between the knowledge basis

and the structure and strategy of a firm generate a reflexive process of specialization

through which particular capabilities are continuously reproduced and extended. At the

same time, knowledge is not just the result of the previous productive use of resources:

it can be conceptualized as a relational resource itself.

In the knowledge-creation view of the firm (Nonaka et al, 2000), which can be

viewed as a generalization of the resource-based view, knowledge is the decisive asset

of a firm and knowledge creation is the key mechanism through which firms produce

and sustain competitiveness. In this perspective, knowledge is viewed as the key

resource of the developing reflexive or learning economy (Boekema et al, 2000; Lundvall

and Johnson, 1994; Strambach, 2004). Recent studies have also shown that an adequate

exploration and explanation of localized industry networks and clusters requires a

knowledge-based view (Bathelt, 2002; Malmberg and Maskell, 2002; Maskell, 2001b)

and cannot be limited to the material linkages between firms and resource locations

alone. Knowledge is neither a resource which guarantees economic success, like the

effect of an independent variable in a mathematical model, nor does it have inherent,

predetermined consequences as a production input. (4) Often we can identify situations

which are characterized by an excess availability of knowledge rather than a shortage.

The solution to a problem has to combine the different sorts of knowledge at hand

(Lundvall and Johnson, 1994). To be able to do this, it is necessary to identify the

relevant knowledge (know-what) and capable partners (know-who) for the particular

context of finding a solution (know-why), and to know how to combine and use this

knowledge (know-how). This clearly demonstrates the relational character of knowl-

edge. It is socially constructed and can even become irrelevant outside a particular

context of interactionöas may be the case if other actors are not capable of under-

standing this knowledge. In contrast to material resources, the stock of knowledge can

be extended through its intensive usage (Maskell, 2001a). (5) Knowledge differs from

material resources and products particularly in two aspects.

(4)

This is, however, implied in studies which are based on a substantive concept of knowledge,

such as much of the work concerning the new endogenous growth theory (see, for an overview,

Koschatzky, 2001; Maier and To« dtling, 1996; Martin and Sunley, 1998).

(5)

The notion of knowledge as `stock' appears problematic when a relational conceptualization is

used. This implies that the use and value of knowledgeöas well as that of other resourcesöare

fundamentally open and constantly changing. It could thus be argued that we should give up images

of stocks altogether. Essentially we do this, and use the term `stock' only as a temporary reference

point to describe the amount and value of accumulated resources at a specific point in time in a

particular context. As is demonstrated in the following, it is virtually impossible to apply substantive

notions of resources in the cases of power and social capital. Here, the notion of `stock' is quite

misleading, as power and social capital refer to network configurations and social relations.

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