Clusters of craftsmen have existed as long as people have lived in substantial settlements— certainly since they have lived in cities. Modern examples include diamond cutters in Antwerp, knife makers in Sheffield, sock makers in Yiwu, and the cinematic entertainers in Mumbai. This phenomenon is widely present in Asia’s information technology (it) industry.

Clusters form because firms benefit from having others in the same, or complementary, industries close by. There is a supply of skilled labor, specialized suppliers and buyers, and flows of knowledge among firms. This is the classic story told by the 19th century economist Alfred Marshall. However, the story is a static one, and hightech industries are quintessentially dynamic. New firms can form new clusters.

As these examples suggest, market forces create them (with Silicon Valley being the prime example), but governments often like to accelerate the process. They do this to enjoy the benefits of having a vibrant cluster sooner than the market might produce and from a belief, which might on occasion be warranted, of establishing a vibrant cluster before some other nation does, that is, to gain a first-mover advantage. However, such initiatives imply that government officials know how to do this. The record on this is checkered.