As parts of Europe struggle to remain competitive, certain regions have witnessed record growth thanks to industrial clusters.

(From L-R) Hugo Aristegui, Marta Alvarez, Olatz Canovas and Sara Basaguren, second year engineering students at the Basque Country University (UPV) place paving stones on a model bridge during the eleventh "Model Bridge with Ice Cream Sticks" competition in Bilbao April 19, 2012. Bridges constructed from ice cream sticks and wood glue are laden with weights to test their strength until they break. The students' model bridge beat last year's record of 702 kg by over a hundred kg, and judges decided to maintain the structure without it breaking. REUTERS/Vincent West

In the north of Spain, touching the French border, lies a small mountainous region that is home to some of the strongest industrial and technological growth across Europe.

In contrast to much of the rest of Spain, innovation and the economy have flourished in the autonomous region known as Euskal Herria, or the Basque Country.

In 2016, around 23% of Basque GDP came from its industrial parks, like Germany's leading industrial areas. Its GDP per capita is about 25% higher than the rest of Spain.

But what are the main reasons for the region's unparalleled success in industry?

In 2006, the government pushed what would become known as the “second transformation of the Basque country." Policies put in place included the establishment of the Business Competitiveness and Social Innovation Plan 2006-2009, the Science, Technology and Innovation Plan, the Basque Foundation for Science, and the Basque Innovation Agency, among other state agencies and innovation promotion initiatives.

The results today are impressive. Investment in research and development is several times higher on average in Basque companies than in other parts of Spain.

The region also transformed its steel and hardware manufacturing facilities, which had become uncompetitive with the advent of automation and outsourcing, and transformed the factories into high-tech plants.
Industry giants in the aeronautics, energy, and automotive sectors are today well established in the Basque country, driving most of their production toward exports.

Iberdrola, one of Spain's biggest energy distributors with a considerable international presence, has its headquarters in the city of Bilbao, the Basque Country's capital. The company has embarked on a public-private-partnership with the Basque Energy Agency to modernize the region's electric grid, by incorporating information and communications technology into the processes of electricity generation, transport, and consumption.

The project has been the subject of praise by European regulators, but it is only one of the many advances to result from this innovation-friendly policy.

Perhaps the most effective of these policies was the establishment of industry-specific clusters, where companies and subsidiaries working in the same fields would be pushed to collaborate in research and development and spur innovation by being located in close proximity to one another.

20 such clusters now operate in the region, spanning from automotive, electronics, energy, audio-visual, and information technologies. These centers interact and collaborate with the Basque Country's main research centers and universities and boast their own research and development departments, in which a significant proportion of revenue is invested every year.

Another result has been the broad improvement of quality of life and education in the region, with the Basque Country producing more academic research papers than any other autonomous region at present.

A similar phenomenon was witnessed in Ireland following the 2008 economic crisis, where industry clusters created by fiscal and infrastructural incentives have made major firms choose Dublin, Cork, Waterford, Limerick, and Galway as their headquarters.

Dropbox, Slack, Google, Facebook, and Twitter are now all at least partly based in Ireland, with offices whose proximity to highly qualified human capital and resources has allowed them to thrive in life sciences, tech, and financial services.

The same concept established Hollywood as a filmmaking center during the early 20th century, and Silicon Valley as a tech center in the past 20 years.

Other European economies would do well to understand the advantages of clustering industrial firms to encourage more rapid growth.