not claim responsibility for support measures in technology transfer and at the sametime neglect the demand of smaller firms.In the early 1980s measures were implemented for the development ofproducts using microelectronics, which aimed at long term innovation in definedkey technologies. DM 450mn. were spent within two years for a federal programmewhich was finally designed for SMEs (Ziegler 1997). The machinery industry hadrun into severe crisis in Germany, including Baden-Württemberg. But it recoveredsoon after 1983, probably also because the innovation process induced theproduction of new flexibly usable machines. The subsequent outstanding localproduction regime of Stuttgart’s machine tool industry was in reality based onnational policy initiatives.From the beginning therefore the local economy of Stuttgart was a networkedfirm economy dependent on large car and electrotechnical firms as well as generalsupport from the federal government. The specialization of firms was customeroriented and technology- and quality-driven. This road to success certainly fitted thescience-based approach and individualistic mentality of the south-west Germanterritories. The consequently developing Sondermaschinenbau which producedmachines in high price and quality market segments and did not compete with massproducts still flourishes today, probably much more vital than many scholars hadpredicted in the 1990s.Performance since the early 1980sAny lessons learned from past research on the performance of local economies isunlikely to predict their future prospects; one cannot easily draw conclusions fromthe social organization of the economy concerning the immediate market benefit thisorganization creates. Many argued that Baden-Württemberg would benefitextraordinarily from its rich support environment in technology transfer (Piore andSabel 1984). However, when the crisis of the early 1990s shook the region, theargument was turned around and the same organizations previously enumerated aspromoters of outstanding economic success were now creating lock-in effects (Cookeand Morgan 1998). By the end of the decade many firms had gone bankrupt, butothers survived surprisingly well and witnessed a brilliant recovery. These trendschange so quickly that it does not make any sense to use them as indicators of longtermsuccess or failure of the social institutions in which markets are embedded.Institutions adapt their capability to support a local economy with LCCGs after a

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