THE GEOGRAPHY OF TERRITORIAL CAPITAL IN THE EUROPEAN UNION: A MAP AND SEVERAL POLICY ISSUES.

• Author: Cojanu, Valentin

1. Introduction

   A competitive position can originate in multiple sources--managerial prowess, market structure, governmental intervention, or technological breakthrough, but one general term suffices to encapsulate them all: a favorable environment, internal and external to the company. This insight had been for long a staple of competitive analysis when Michael Porter (1990) turned it from a niche study of business strategists into a dominant topic of policy-making. As Porter concluded, policy effectiveness in terms of raising a country's living standards requires measures to unbind the competitive potential of domestic businesses. Vital to this process is the impact of location factors.

   Porter's results resuscitated the tradition of 'spatially oriented economic studies' (Huggins and Izushi, 2015) and have since changed the way we relate competitiveness to development and to location. The conceptual trio has been an answer to account for the substantial transformations as to the organization of economic activities during the last decades. Commenting on the geographical scope of competitive advantage, Enright (1993) set the investigative questions in 'a model of the features that give one location an advantage over other locations for a given industry or set of industries'. It is a model which is framed at the junction between fragmentation and globalization of the economic space and implies, in a brief description, that competition across territories is gradually replacing competition between countries in the role of allocating resources and creating market value.

   In this paper, we contemplate the model of locational features through the lens of the geography of territorial capital in the European Union (EU). As we will explain in the next section, the dedicated literature sets forth one unambiguous conclusion--territorial capital represents a key asset to gain competitive advantage--as well as many research hypotheses that still await substantiation about how to provide a coherent policy template with a territorial approach to underpinning competitiveness. Assuming we have become more knowledgeable about the causal nexus from location to competitive advantage to development, how are we supposed to turn this insight into effective policy-making?

   Policy tasks for regional economies, especially for those cutting across national boundaries, do not yet converge towards an encompassing blueprint. To be sure, reviews inform regularly on the progress that has been made in regional policy development for domains such as environment, culture, innovation, energy or transportation; on its part, empirical evidence has been accumulating to defend the hypothesis regarding the positive role of territorial factors in supporting growth and competitive performance. Relevant though they may be, were we to join all pieces together in an articulated mechanism, we would soon have to confront two impenetrable issues: benefits for whom and within what territorial confines?

   From this perspective, this study contributes with evidence regarding the endowment with territorial capital at EU regional level and the lessons we can draw to set a policy agenda for development and competitiveness. We define territorial capital along five components and nine indicators, and collect data for the EU NUTS 2 regions --national administrative units having a population between 800,000 and 3 million people. Data are processed through a statistical cluster analysis to show how regions group themselves together based on similar territorial endowments.

   All this evidence reveals several patterns of regional economic development, with specific configurations of territorial assets, which further shed light on the connection between location and competitiveness and development. For at least two reasons absence of data for the entire sample and narrow scope of investigation--we have not been in the position to reach specific conclusions in respect to the impact of territorial assets on competitiveness and location. Instead, we describe a panoramic view of the conditions of geographic distribution of territorial capital in the EU that sheds light on the premises underlying the application of the conceptual trio in policy-making.

2. Distribution of territorial capital in the EU: background and methodology

   Marketing has been the most important conduit for assimilating territory with a competitive asset. Companies have made known for long the origin of their goods or services with distinctive marks of location, such as 'Made in ...' or 'Appellation d'origine protegee'. Economists, however, have been slow at integrating it into a conceptual framework, 'mostly taking it for granted' (Ateili and Kadercan, 2017) besides factoring distance in only for cost calculations. This is probably why, on their part, policy makers were not successful in transferring the business insight in relation to location into sensible public initiatives. The EU administration, for example, laid out a blueprint for a more competitive economy in two documents, the Lisbon (on growth) and Goteborg strategies (on sustainability), although 'in neither case were the spatial impacts explicitly considered' (Servillo, Atkinson and Russo, 2011). Similarly, the US Department of Commerce has been questioned about its capacity to support businesses in international competition on the argument that there are '379 separate economic development districts, many of which are too small to function as globally competitive entities' (Council on Competitiveness, 2010).

   The recent period has shown, however, an increasing interest in documenting the role of territory as a competitive (and economic) asset. We attempt to highlight these contributions in the remaining of this section.

   2.1. Background

   In a celebrated passage of his Principles, Marshall yielded to a poetic exposition of the economic impact of location:

   'When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously.' (Marshall, 1920, p. 271) (our italics)

   In further paragraphs, Marshall pinned down those mysteries to a set of three key factors--'the use of highly specialized machinery', 'a local market for special skill', and 'the growth of subsidiary trades'--that account for the benefits of location, an observation which continues to stand verbatim for a textbook lesson even these days (Krugman, Obstfeld and Melite, 2012, p. 170). It is however his other locution--as it were in the air--which puzzled the economists trained in formal tradition. Even for the first geographical economists it was hard to overlook there is more than to reduce this apparently cloudy representation of proximity to no more than a physical concept. For example, Losch noted: 'Countries and economic regions do not necessarily coincide. But political boundaries could cut through regular market networks, which results in economic losses' (Losch, 1940, p. 197).

   This insight led to an intense scrutiny of the concept of proximity that eventuated into varieties of proximities of ever more social and economic significance: relational, technological, cultural or institutional proximity (Ghemawat, 2001; Tremblay, Chevrier and Rousseau, 2004). With the resurgence of the literature emphasizing the economic impact of location (Perroux, 1954; Porter, 1998; Porter, 2000; OECD, 2001; Camagni and Capello, 2009; World Bank, 2009; Park, Nayyar and Low, 2013) in its various configurations --clusters, growth poles, learning regions, innovative milieu, territory as factor of production or territorial capital--has gradually become an indispensable part of an economist's toolkit to diagnose the competitive potential for a regional economy.

   The OECD definition of territorial capital elaborates on Marshall's insight to a level of detail that gives credit to a remarkably large number of theoretical contributions. An area's endowment with territorial capital is determined by factors, tangible and intangible, such as: '(1) the area's geographical location, size, factor of production endowment, climate, traditions, natural resources, quality of life; (2) the agglomeration economies provided by its cities, but may also include its business incubators and industrial districts or other business networks that reduce transaction costs; (3) 'untraded interdependencies' such as understandings, customs and informal rules; and (4) 'the solidarity, mutual assistance and co-opting of ideas that often develop in clusters of small and medium-sized enterprises working in the same sector (social capital)' (OECD, 2001, p. 15).

   Within this conception, each region has a different potential to nurture economic initiatives whose success depends on the existence of certain territorial assets in a certain combination and the local institutional capacity to capitalize on these assets. The hypothesis has been tested for the impact of the endowment with territorial assets on regional economic development, in most cases with conclusive results (Affuso and Camagni, 2010; Brasili, 2011; Brasili et al., 2012; Veneri, 2011). One caveat is however due in interpreting them. Difficulty in collecting statistical data, on the one hand, and multitude and subtlety of forms that territorial capital can take, on the other hand, have led researchers to focus on a narrow set of variables and, at times, on narrow conceptual interpretations. This is how emphasis varied between selected components of 'hard and soft territorial capital' over large geographical areas (Casi and Resmini, 2012) and large sets of variables available for particular regions (Pompili and Martinoia, 2011; Veneri, 2011) or cities (Rota, 2010).

   The upshot of...