that circulated, Marshall observed, as if ‘in the
air’ (see Krugman, 1991).
These arguments have been vigorously
rejoined in recent years in discussions of indus-
trial clusters, agglomeration economies,
and flexible accumulation. Allen Scott
(1988b), for example, has argued that the ten-
dencytowards verticaldisintegration –in which
firms increasingly turn to the market to supply
key inputs and services, rather than organizing
these internally – is a defining characteristic of
the contemporary form ofpost-fordistcapit-
alism. As firms become increasingly reliant on
external inputs, the competitive imperative of
minimizingtransaction costsinduces geo-
graphical clustering, which in turn accounts
for the continuing significance of localized
centres of production such as Hollywood and
the City of London, even in highly globalized
industries such as movie production and
finance. Likewise, Storper and Walker (1989)
contend that the process of capitalistindustri-
alization is increasingly driven by external
economies of scaleandeconomies of scope
which in the contemporary phase of growth
accrue to entire industries rather than just indi-
vidual firms. In this analysis, technological
innovation(such as the development of inte-
grated circuits or theinternet) assumes the
character of asharedresource, with spillover
benefits for the economy as a whole. In contem-
poraryindustrial districts,suchastheEmilia-
Romagna region of Italy, it is also argued that
even rival firms reap external economies from a
climate oftrustand reciprocity, resulting in
collaborative initiatives in areas such as training,
design, marketing and research. These are what
Michael Storper (1997b) calls ‘untraded inter-
dependencies’, which are increasingly salient in
the contemporary era of vertically disintegrated,
flexiblecapitalism. jpe
Suggested reading
Scott and Storper (2003).
externalities Costs or benefits borne by an
individual not directly involved in the activity;
or, in broader terms, the social or environmen-
tal consequences of private choices.Positive
externalities (sometimes known asexternal
economies) represent benefits accruing to
third parties; for example, those arising from
a bee-keeper located next to an apple orchard,
or a group of residents living near to high-
quality local schools. Negative externalities
(which are also known as external diseco-
nomies) refer to the downstream costs of
choicesoractivitiesforthirdparties,theclassic
illustration of which ispollution. This is a key
concept inenvironmental economics, expos-
ing some of the limits of purelymarket-based
systems of coordination, since negative external-
itiesarecoststhatfallonactorsotherthanthose
directly involved in the activity. A tragedy
of the commonsmay result, in which individu-
ally motivated actors ‘free-ride’ on collective or
shared resources, capturing individual benefits,
but with a net detriment for society as a whole,
as shared resources are depleted or degraded
(see Hardin, 1968). Responses to these
dilemmas can include governmental regulation
such as ‘green taxes’, or market-mimicking
strategies such as pollution pricing.
In economic geography, an example of
negative externalities is the common problem
of firms under-investing in skills training:
these costly and risky investments can be
evaded by individual firms if they poach skilled
workers from other firms, or otherwise plunder
the resources of urbanlabour markets.The
aggregate outcome is an under-investment in
skills across the urban labour market, as even
scrupulous employers are deterred from train-
ing their own workers for fear of poaching (see
Peck, 1996). Meanwhile, examples of positive
externalities include those ‘agglomeration
economies’ captured by firms locating near
to suppliers and customers. Scott (1988c)
reveals how many so-called ‘flexible firms’
are narrowly redefining the boundaries of their
organizations, focusing on core competences
while buying in an increasingly broad array
of goods and services from other firms (e.g.
contract catering, management consultancy,
temporary-agency labour). In order to minim-
ize thetransaction costsassociated with such
activities, flexible firms are induced to cluster
together in space, generating the dense net-
works of inter-firm relations that characterize
‘new industrial spaces’ such as Silicon Valley.
Take the example of Wal-Mart, the world’s
largest retailer and the USA’s biggest employer
(see Wrigley, 2002; Brunn, 2006). The long-
running debate around the local community
impacts Wal-Mart centres on externalities.
Critics of the company allege that its practice
of paying low wages is a form of free-riding
on public welfare systems, since many of
Wal-Mart’s employees qualify for government
programmes designed for the poor, such as
food stamps, subsidized housing and publicly
funded healthcare. Other negative external-
ities follow from Wal-Mart’s ability to hold
down prices (due to its market power), which
often drives smaller, neighbourhood retailers
out of business. On the other hand, defendersGregory / The Dictionary of Human Geography 9781405132879_4_E Final Proof page 235 1.4.2009 3:17pmEXTERNALITIES