In recent years, industrial strategy has returned to the centre of political and economic debate. Governments across advanced economies are once again asking how they can shape growth, support innovation, and address deepening regional inequalities.
For decades, however, much of industrial policy has rested on a powerful but often unquestioned assumption: that economic growth is driven primarily by agglomeration. According to this view, firms, workers, and ideas cluster together in dense urban regions, generating productivity gains and innovation spillovers that ultimately benefit the wider economy.
In our recent paper “Beyond the agglomeration orthodoxy: rethinking industrial strategy” published in the journal Contemporary Social Science, Paul Hildreth and myself challenge this dominant framework and argue that it is no longer adequate for the economic realities policymakers face today, in the UK at least.
The agglomeration orthodoxy has strong roots in economic theory and empirical research, of course. Large cities and established industrial clusters do tend to host high levels of productivity, innovation, and high-value employment. As a result, industrial strategies in many countries have focused on reinforcing these existing hubs, often on the assumption that growth generated in successful regions will eventually spill over to lagging places.
Yet we argue that this logic has become increasingly detached from lived economic outcomes in the UK. Despite decades of agglomeration-led policy, regional inequalities remain persistent and, in some cases, have widened. Many regions outside major metropolitan centres continue to experience low productivity, weak investment, and limited access to high-quality jobs.
A key problem, we suggest, is that agglomeration has shifted from being an empirical observation to a policy orthodoxy. Rather than asking where and how agglomeration works, policymakers have often treated it as a universal solution. This has encouraged a perverse form of spatial blindness in industrial strategy, where place is acknowledged rhetorically but neglected in practice.
Policies designed around the needs of already successful regions are applied broadly, even though the institutional capacity, skills base, and industrial structure of different regions vary dramatically. As a result, many places are effectively asked to compete on unequal terms, without the assets required to replicate the success of established clusters.
We also question the assumption that innovation is still inherently tied to dense geographic proximity. While face-to-face interaction and local networks remain important, the nature of innovation is changing. Digital technologies, remote collaboration, and global production networks have reduced the extent to which innovative activity must be concentrated in a single place.
Firms increasingly operate across distributed networks, drawing on expertise, suppliers, and knowledge from multiple regions and countries. This challenges the idea that only large cities can host innovative industries, and opens up new possibilities for smaller cities, towns, and peripheral regions to play meaningful roles in innovation systems.
Another key limitation of agglomeration-led industrial strategy is its tendency to concentrate resources in already successful areas. In so doing, policymakers may maximise short-term returns, but at the cost of long-term economic balance and social cohesion. Regions left outside these growth strategies often face declining public services, skills erosion, and political disaffection.
We argue that industrial strategy should not be judged solely on aggregate growth metrics, but also on its ability to generate broad-based prosperity, reduce inequalities, and support economic resilience in the face of shocks such as financial crises, pandemics, or supply-chain disruptions.
In response to these challenges, we call for a rethinking of industrial strategy that moves beyond agglomeration as its organising principle. Rather than abandoning agglomeration altogether, we argue for placing it within a broader, more flexible framework that takes place seriously. This involves recognising that different regions have different development pathways and that successful industrial strategies must be tailored to local conditions.
A place-sensitive approach focuses on building local capabilities, strengthening institutions, and supporting forms of innovation that align with regional strengths, rather than trying to recreate Silicon Valley-style clusters everywhere.
Such an approach places greater emphasis on the role of local anchor institutions, including regional governments, universities, training providers, and business networks. These institutions play a crucial role in shaping how firms innovate, how workers acquire skills, and how investment decisions are made.
Where institutional capacity is weak, industrial strategy must include measures to strengthen governance, coordination, and long-term planning. This contrasts with more centralised, top-down models that assume markets alone will allocate resources efficiently across space.
We also highlight the importance of skills and workforce development in reimagined industrial strategies. A more inclusive strategy invests in skills where people live, aligning education and training systems with local industrial priorities. This not only supports regional development but also reduces the social and economic costs associated with forced mobility and population decline.
Infrastructure investment is another critical component of moving beyond agglomeration orthodoxy. Rather than focusing solely on transport links that connect peripheral regions to major cities, we emphasises the importance of digital infrastructure, local transport, and energy systems that enable regions to develop their own economic ecosystems.
The policy implications of our argument are significant. Rethinking industrial strategy means shifting away from narrow funding models that disproportionately benefit large urban centres and towards more balanced portfolios of investment. It means redefining success to include social and regional outcomes, not just headline productivity figures. It also requires patience, as place-based development is a long-term process that cannot be delivered through short funding cycles or isolated projects.
Ultimately, our critique of the agglomeration orthodoxy is not a rejection of cities, clusters, or density, but a call for humility and realism in economic policymaking. Agglomeration can generate powerful benefits, but it is neither inevitable nor sufficient as the foundation of industrial strategy.
In a world shaped by technological change, environmental pressures, and political uncertainty, economies need strategies that are adaptable, inclusive, and grounded in the diverse realities of different places.
By moving beyond agglomeration as a one-size-fits-all solution, we suggest that industrial strategy can be a more effective tool for fostering sustainable place-based development.
Additional Readings:
- Bailey, D., & Hildreth, P. (2025). Beyond the agglomeration orthodoxy: rethinking industrial strategy. Contemporary Social Science, 1–12.
- Bailey, D., De Propris, L., Dimos, C., Fai, F. M., Hardy, S., & Tomlinson, P. R. (2025). A critical review of the UK’s modern industrial strategy: Lessons for ‘place-based’ policy. Regional Studies.
- Bailey, D., De Propris, L., Gansauer, G., & Tomlinson, P. R. (2025). Industrial strategy reborn: global trends, tensions and trajectories. Contemporary Social Science, 1–16.
Connect with the Author
David Bailey is Professor of Business Economics at the Birmingham Business School, University of Birmingham, UK and an ESRC ‘UK in a Changing Europe Senior Fellow’. He has written extensively on industrial and regional policy, especially in relation to manufacturing and the auto industry. He is Co-Editor-in-Chief of the journal Contemporary Social Science, editor of the journal Regional Studies, and a Director of the RSA Europe Think-Tank and policy forum. He has acted as a consultant for numerous organisations and companies. David is a regular media commenter and newspaper columnist.
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