Entrepreneurship and Global Competitiveness in [605258]

Entrepreneurship and Global Competitiveness in
Regional Economies: Determinants and Policy
Implications
Chapter 5 The New “Cluster Moment”: How Regional Innovation Clusters can Foster
the Next Economy
Mark Muro, Bruce Katz
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To cite this document: Mark Muro, Bruce Katz . "Chapter 5 The New “Cluster
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Entrepreneurship and Global Competitiveness in Regional Economies: Determinants
and Policy Implications. Published online: 08 Mar 2015; 93-140.
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CHAPTER 5
THE NEW ‘‘CLUSTER MOMENT’’:
HOW REGIONAL INNOVATIONCLUSTERS CAN FOSTER
THE NEXT ECONOMY
Mark Muro and Bruce Katz
ABSTRACT
Purpose – The purpose of this chapter is to advance understanding of
regional industry or innovation clusters and the opportunities that the
cluster framework provides policymakers for delivering economic impact,clarifying economic priorities, and coordinating disparate programmaticefforts, and to articulate some basic principles for formulating clusterstrategies.
Methodology/approach – As the cluster concept enters its third decade
and the body of related literature reaches a new level of maturity a
consensus has emerged among academics and policy thinkers on theeconomic benefits of clusters. In fact, clusters have emerged as majorfocus of economic and policy discussion just now – in what the authors duba ‘‘cluster moment’’ – by dint of their demonstrated practical impact, their
value in paradigm discussions, and their potential utility in policy reform.
The chapter reviews the benefits of clusters and traces their ascendance –and re-emergence post-recession – among policy thinkers.
Entrepreneurship and Global Competitiveness in Regional Economies: Determinants
and Policy Implications
Advances in the Study of Entrepreneurship, Innovation and Economic Growth, Volume 22, 93–140Copyright r2011 by Emerald Group Publishing Limited
All rights of reproduction in any form reservedISSN: 1048-4736/doi:10.1108/S1048-4736(2011)0000022008
93
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Findings – New research confirms that strong clusters tend to deliver
positive benefits to workers, firms, and regions. As a paradigm, they
reflect the nature of the real economy and as a matter of policymaking,clusters provide a framework for rethinking and refocusing economic
policy. In pursuing cluster-based economic development strategies, policy
leaders should not try to create clusters; use data to target interventions,drive design, and track performance; focus initiatives on addressingdiscrete gaps in performance or binding constraints on cluster growth;maximize impact by leveraging pre-existing cluster-relevant programs;align efforts vertically as well as horizontally; and let the private sectorlead. All three tiers of the nation’s federalist system have distinct andcomplementary roles to play in advancing the cluster paradigm.
Research limitations/implications (if applicable) – The paper includes no
new/original data.Practical implications (if applicable) – Given that clusters have emerged
as a major focus of economics and policy, this chapter lays out a core set
of general principles for pursuing cluster-based economic developmentstrategies – and for avoiding common pitfalls – to which policymakers canadhere.
Originality/value of paper – The chapter advances cluster thinking and
cluster strategies as a paradigm with the potential to accelerate regional
economic growth and assist with the nation’s needed restructuring and
rebalancing toward a more productive post-recession economy.
INTRODUCTION
Twenty years after Harvard Business School professor Michael Porter fully
introduced the concept to the policy community and 10 years after the mostup-to-date state and local development professionals grew weary of theconcept, industry clusters – geographic concentrations of interconnectedfirms and supporting or coordinating organizations – have reemerged as akey tool and rubric in Washington and in the nation’s economic regions.
After a decade of delay, the executive branch and Congress have finally
joined state and local policymakers in embracing ‘‘regional innovation
clusters’’ (RICs) as a new framework for structuring the nation’s economic
development activities.MARK MURO AND BRUCE KATZ 94
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At the state level, governors and gubernatorial candidates of both parties
are maintaining or stepping up their longstanding interest.
Additionally, a broad range of business leaders, mainstream commentators,
and policy analysts have been calling in the wake of the recent recession for a
different kind of growth model that takes into consideration the distinctiveness
of metropolitan economies and super-productive clusters within them.1
All of which makes it appropriate to revisit the cluster paradigm and
consider its special relevance at a moment of deep economic uncertainty,fiscal crisis, partisan gridlock, and necessary governance reform.
More than a case of merely slow federal uptake, the new prominence of
clusters actually reflects something deeper: an effort to locate a moregrounded, realistic way to think about the economy and development efforts
so as to put both on a more productive and sustainable footing.
Simply put, clusters – such as the Silicon Valley technology cluster or the
Vermont cheese-making cluster – represent an antidote to nation’s recent
economic ailments.
For three decades, the nation has relied on a series of bubbles that have
generated glitzy short-term growth but not truly productive or sustainableprosperity.
2
Most recently, the collapse of the massive housing and financial sector
bubble in 2008, the ensuing deep recession, and the present halting recoveryrevealed the dysfunction of a U.S. economy that has gone badly awry.
Not only has a focus on the short term led the nation to under-invest in the
drivers of sustainable growth: innovation inputs like R&D; physical andtechnological infrastructure; education; and clean energy (National EconomicCouncil, 2009). What is more, the recent crack-up revealed an economy thathad become addicted to domestic consumption and debt, dominated byfinancial manipulation, disdainful of production, and obtuse about the real
world, local, and practical processes of creating value and advantage.
3
In contrast, the new cluster discussions redirect attention, analysis, and
policymaking to the more grounded, day-to-day interactions by which real
companies in real places complete transactions, share technologies, developinnovations, start new businesses, and locate employees.
4
An industry cluster, in this respect, is a geographic concentration of firms,
suppliers, coordinating entities, and related institutions in a particular fieldthat arises and grows because of the mutual benefits they derive from
proximity and the powerful synergies it makes possible, whether of knowledge
exchange, mutual access to skilled labor pools, or the use of shared publicgoods. Thanks to those synergies and efficiencies, clusters are signal featuresHow Regional Innovation Clusters can Foster the Next Economy 95
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of the ‘‘real’’ economy that have the power to enhance the performance of the
economy; deliver higher returns on taxpayer investments in economicdevelopment; and enlist bipartisan support at a time of gridlock.
On the latter two fronts, the relatively low cost and likely efficiency
returns of cluster strategies (along with their Republican lineage andpragmatic concern with the mechanics of value creation in local economies)make them an attractive policy option at a time of tight budgets andpartisan tension.
REGIONAL INNOVATION CLUSTERS AND
CLUSTER INITIATIVES DEFINED
Regional innovation (or industry) clusters are geographic concentra-
tions of interconnected businesses, suppliers, service providers,coordinating intermediaries, and associated institutions like universitiesor community colleges in a particular field (e.g., informationtechnology in Seattle, aircraft in Wichita, and advanced materials inNortheast Ohio). By facilitating such dynamics as labor market
pooling, supplier specialization, and knowledge spillovers, industry
clusters benefit all sorts of firms and regions by enhancing the local andinnovation potential, encouraging entrepreneurship, and ultimatelypromoting growth in productivity, wages, and jobs.
Separate and distinct, cluster initiatives are formally organized efforts
to promote cluster growth and competitiveness through collaborativeactivities among cluster participants. Some cluster initiatives and cluster
initiative programs supporting multiple initiatives are run by govern-
ments. Cluster initiatives may sponsor education and training activities,encourage relationship building, or facilitate market developmentthrough joint market assessment and marketing, among many others.
For more information, see Mills, Reynolds, and Reamer (2008); Porter (2000 ).
But what matters most is the simple economic fact of clusters. Thanks
to clusters, firms, regions, and the nation are more productive than they
might otherwise be. As a result of clusters, millions of American workers,
firms, and regions are enjoying higher wages, more competitive industries,more innovation, and more successful entrepreneurship than they mightotherwise.MARK MURO AND BRUCE KATZ 96
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In fact, through the efficiencies and synergies of clusters, numerous U.S.
regions are already engaged in constructing a more export-intensive, lower-
carbon, and innovation-fueled economy here in America.
In Wichita, for example, the 40,500 workers employed by the 120
establishments in Wichita’s aircraft cluster helped the region export nearly28% of the metro area’s gross metropolitan product to foreign countries in2008, a figure more than two and one-half times higher than the nationalaverage (see Istrate, Rothwell, & Katz, 2010 ).
5
In Colorado, the ‘‘green’’ economy is taking shape along the Front Range
where renewable energy research, manufacturing, and production employ17,000 people in 1,500 different clean energy companies, bolstered byspecialized institutions like the National Renewable Energy Laboratory and
the Ecotech Institute, the nation’s first private, two-year college aimed
specifically at green workforce training.
6
And for that matter, the ‘‘innovation economy’’ is well under way in
Northeast Ohio, where more than 600 firms now comprise a biomedicalcluster which grew at an annualized rate of 7.4% from 2003 to 2008 and in2008 alone attracted $395 million in venture capital and National Institutesof Health (NIH) funding.
7The implication: One way to accelerate the
emergence of the next economy in America may well be to strengthen the
nation’s varied regional innovation clusters.
Beyond their importance as a practical fact of economic development,
clusters provide a powerful, comprehensible paradigm for understanding
what matters in economic life and organizing policy.
Along these lines, cluster concepts provide a useful framework through
which to align federal, state, and local economic policy with local economicreality and then to organize policy reform.
To be sure, the United States has managed to generate an array of strong
clusters despite the near absence of federal-government programs to supportthem (and in the presence of an irregular patchwork of state offerings) andmay never embrace the strong central-government cluster programs of manyEuropean and Asian countries. Yet even so, this nation may well be movingtoward a distinctively American cluster stance in which the states andregions act more forcefully while the national government focuses onmaintaining sound economic fundamentals, providing comprehensivecluster data, and better aligning disparate preexisting programs with the
cluster paradigm.
In any event, globalization, increase d competitor state policy activism,
and the current economic crisis are all helping to make clusters an
important framework for working out a pro-market, pro-productivityHow Regional Innovation Clusters can Foster the Next Economy 97
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stance that avoids old-style ‘‘industrial policy’’ but nevertheless gives
government an active role in contributing to higher productivity and thusprosperity gains.
Hence this policy note: Intended to review the importance of industry
clusters and several advantages of cluster-oriented policy and practice at atime of federal program experimentation and continued economicuncertainty, the following pages explore the new relevance of cluster policyduring the present ‘‘cluster moment.’’
To that end, the next section of the chapter examines the fundamental
differences of cluster frameworks from conventional economic policy toenhance national competitiveness. A section after that suggests some of thevirtues of cluster frameworks and policy at the present juncture, and then
another section proposes some principles for making the most of the present
‘‘cluster moment’’ en route to highlighting top ways the three major tiers ofU.S. governance might co-produce a cluster-focused economic developmentpush. A final section concludes.
In sum, the main takeaway here is simple: More a paradigm than a
program, clusters are neither a shiny new fad, a silver bullet, nor ethereal,but instead hold practical value for businesses, workers, and policymakersalike as all seek lasting new sources of productive growth at a moment of
economic uncertainty.
THE ‘‘MISSING MIDDLE,’’ ‘‘BLACK BOXES,’’
AND CLUSTERS
The world may be ‘‘flat,’’ as Thomas Friedman famously concluded, but the
most salient spatial reality of modern economies is actually their ‘‘spikey’’concentration in a relatively small number of particular places ( Florida, 2005 ).
This concentrated reality is first of all arithmetic. In 2008, for example, the
100 largest metropolitan areas in America concentrated 74% of thecountry’s college graduates, 75% of workers with graduate degrees, 82%of NIH and NSF research funding, and 96% of all venture capital funding(Muro et al., 2008 ).
But beyond this arithmetic accumulation of inputs, regions are
exponential in their impact. What ensures this is the geographic multipliereffect that results from the linking in dense places of innovation resources,human capital, infrastructure, and quality of place.MARK MURO AND BRUCE KATZ 98
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In this respect, a large body of evidence shows that dense populations and
dense concentrations of business activity accelerate and maximize economic
outcomes.8For example, such agglomerations ensure that while the 100
largest metropolitan areas in America contain 12% of the nation’s land
mass and two-thirds of its population and jobs they generate 75% of the
nation’s output, 78% of all patents, and 85% of all new firms starts.9
To that extent, it is quite literally true that the U.S. economy is not only
national but regional. Regions are not part of the national economy; they‘‘are’’ the national economy, as Alan Berube has observed ( Berube, 2007 ).
Policymaking needs to take that into account.
Current Federal Policy Falls Short
And yet, the fact is that federal (and to a lesser extent state) economic policyto date has not concerned itself much with this regional reality – for tworeasons.
First, the federal government has not historically viewed regional
competitiveness as an important foundation for national economic well-
being and has instead concerned itself with what might be called the ‘‘macro’’
and the ‘‘micro.’’ As Michael Porter notes:
Economic policy, especially at the federal level, has traditionally focused on opposite
poles. On one extreme, policymakers have sought to improve the general businessenvironment that affects all firms. This occurs through policies such as macroeconomicstabilization, tax policies to encourage saving, investment and R&D, public investments
in universities and physical infrastructure, and enforcement of antitrust regulations. On
the other extreme, policies have sought to benefit the competitiveness of individual firmsand individual workers. There are many such policies, including loan guarantees from
the Small Business Administration and the Export Import Bank, technical assistance
programs, training support for qualifying workers, procurement policies benefiting smallbusinesses, and SBIR grants. ( Porter, 2009 )
Washington, in short, has for decades lacked what Karen Mills, Andrew
Reamer, and Elizabeth Reynolds call a ‘‘middle’’ or ‘‘meso-’’ strategy – one
that seeks to strengthen the institutions, networks, and regional economiesthat support business activity to address companies’ needs collectively, not
individually, through relevant joint actions.
10
A second problem is related. Whether it is to promote innovation, foster
entrepreneurship, provide business support, or engage in workforce devel-
opment, federal and state economic programs typically aim at providing theHow Regional Innovation Clusters can Foster the Next Economy 99
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‘‘right’’ level of economic inputs but do not concern themselves very much
with the real-world use and outcomes of such provision.
In this respect, too many federal and state programs assume too blithely
that markets left to their own devices will then take full advantage of the
inputs’ availability.
Take federal and state government innovation policies, for example. Such
initiatives, though often robust, are still largely based on what the economist
Greg Tassey calls the ‘‘black box model’’ of growth, which assumes desirablegoods and services magically appear as a result of the right combination ofR&D spending with the traditional inputs of capital and labor (especiallyscientists) (see Tassey, 2007a, 2007b ). However, this ‘‘magical’’ or ‘‘black box
model’’ of innovation is misleading. Most notably, it suffers from assuming, as
Tassey observes, that basic research gets easily or almost automatically
translated into commercial activity. Yet commercialization does not happen
easily. In fact, as Rob Atkinson and Howard Wial have written, the real-lifecommercialization process is jam-packed with complications and marketproblems, including information breakdowns, institutional inertia, coordina-tion and communication problems, and poorly aligned incentives ( Atkinson &
Wial, 2008 ). In this way, government economic policy has dwelt too much in
the world of ideal conceptions and what Atkinson and David Audretsch call
‘‘mathematical models’’ and not enough in the messy and complicated world of
how firms, industries, and national and regional economic systems actuallywork and perform ( Atkinson & Audretsch, 2008 ).
Clusters Occupy the Missing Middle of Conventional Economics
Against this backdrop, clusters and the vast body of description, analysis,
theorization, and measurement that have been carried out about them over
the last 30 years have a compelling interest.
Clusters are groups of firms, related acto rs, and institutions that are located
near one another and that draw productive advantage from their mutualproximity and connections.
11Clusters arise and grow because the firms within
them profit materially from the presence of powerful ‘‘externalities’’ and‘‘spillovers’’ that bring the m important competitive advantages, ranging from the
presence of a specialized workforce to sup plier specialization and the exchange
of leading-edge knowledge.
Not much regarded by conventional economic discussions, clusters consist of
the grittier, real-world interactions in real places of what Porter, calls ‘‘local
things’’: firms, suppliers, trade ass ociations, and other coordinatingMARK MURO AND BRUCE KATZ 100
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organizations, specialized training programs, community colleges, university
departments and tech-transfer offices, local governments (Porter, 1998a, 1998b ).
LARGE AND SMALL CLUSTERS
ACROSS THE NATION
Famous examples include well-known industry concentrations such asIT in Silicon Valley, biotech in Boston, film in Hollywood, and oil andgas on the Gulf Coast, but a host of lesser-known and emerging-industry clusters are just as significant to growth and prosperity.
Colorado Cleantech: More than 1,500 companies comprise Colorado’s
burgeoning clean-energy cluster, the fastest growing sector in the state
and a magnet for venture capital. Institutions like the National
Renewable Energy Laboratory (NREL) and the Colorado Clean
Energy Collaboratory, a collaboration between NREL and the region’suniversities, nourish the cluster with groundbreaking research whilegiants like Vestas and Siemens add to the region’s manufacturingcapacity. Top-class universities like Colorado State, the University ofColorado at Boulder, and the Colorado School of Mines supply askilled and highly specialized workforce. Ultimately this cluster owesmuch of its success to strategic state policymaking that established a
market and fostered an environment in which it could and grow.
Indiana Life Sciences Cluster : Anchored by several large pharmaceu-
tical, agricultural feedstock, and medical device companies, the region
has also developed a concentration of 50 companies and over 8,000
skilled workers specialized in sophisticated biopharma services such as
contract research, contract manufacturing, and logistics. Spurred bythe efforts of the Biocrossroads cluster initiative, the state outpacednational life sciences job growth, at 17.2% versus 15.8% from 2001 to2008, to employ a total of over 52,800 workers.
Michigan Battery Cluster : An existing core of 330 automotive R&D
centers and over 65,000 engineers, complemented by targeted state
incentives to promote related manufacturing and technology commer-cialization, positions the state to build up the regional battery valuechain, from materials, cell, and pack manufacturing, to contract andoriginal equipment manufacturing, and ultimately to powertrainHow Regional Innovation Clusters can Foster the Next Economy 101
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integrators. Sixteen advanced battery companies are now located in
Michigan, representing almost $6 billion in total investment and thepotential to create 62,000 new jobs.
Northeast Ohio Polymers Cluster : Northeast Ohio’s polymers cluster
boasts a critical mass of polymer and advanced material manufac-
turers, specialized academic institutions, suppliers, and end users.PolymerOhio, a public–private university technology center and one of
many organizations supporting the cluster, serves as a networking and
information hub. Kent State’s Liquid Crystal Institute, the Universityof Akron’s College of Polymer Science & Engineering, and CaseWestern’s Center for Applied Polymer Research all contribute to thecluster’s knowledge stock. The University of Akron’s tech-transferprogram, for its part, ranks among the nation’s best.
Puget Sound Interactive Media Cluster : Built off of the Seattle area’s
talent base in software, art and design, the region’s video game industry
cluster boasts over 15,000 well-paying, high-skilled jobs across 150companies, generates $4.2 billion in annual output, and supports anadditional 50,000–68,000 jobs throughout the Washington Stateeconomy. Region-wide, jobs at established employers grew by 14%
(or over 5,000 workers) between 2006 and 2008 and 11 educational
institutions offering curriculum around video game developmentcontinue to supply the sector with needed new talent.
South Carolina Auto Cluster : Since the first vehicle rolled off of BMW’s
Spartanburg, South Carolina assembly line in 1995 the state’s 10 county
auto cluster has grown smartly, comprised today of 125 automotivesuppliers and related companies with an estimated annual economicimpact of $8.3 billion. Clemson University’s International Center forAutomotive Research (CU-IACR), a public–private research collabora-tive, anchors the cluster with a graduate school in automotiveengineering and research centers like the Information Technology
Research Center, where mechanical, electrical, and computer engineers
and students collaborate in an open-innovation, multidisciplinaryenvironment to advance IT innovations in the auto industry.
Vermont Artisanal Cheese Industry : Growing from roughly a dozen
members in the mid-1990s to nearly 50 today, the growth trajectory of the
Vermont Cheese Council represent the great strides that the state’s smallbut fast-growing and award-winning cheesmakers have made in thisvalue-added niche market. Since 2003, the cluster has posted double-digitMARK MURO AND BRUCE KATZ 102
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growth in production, and continued expansion is supported by industry-
organized collaborative marketing and distribution efforts and theInstitute for Artisan Cheese at the University of Vermont, the nation’sfirst and only center for education, research, and technical services
devoted to expanding and advancing the artisanal cheese industry.
Wichita Aviation Cluster : Wichita’s aviation cluster is an export
powerhouse of over 200 mostly small and medium firms, some over a
century old that collaborate to compete. Within the cluster, the National
Institute for Aviation Research (NIAR) drives research collaborationsbetween Wichita State University (WSU), NASA, the Federal AviationAdministration, and private companies like Lockheed Martin, Cessna,and Lear, that help the cluster’s firms maintain their collective competitiveadvantage. To meet the cluster’s coming workforce needs, the county,along with the NAIR, WSU, and the Wichita Area Technical College,came together to find the National Center for Aviation Training, which
aims to be a national hub for aviation education, training, and research.
Clusters, in this respect, reside exactly in the ‘‘missing middle’’ of
conventional economics, between the general economy and the individualfirm. They grow in the often ignored space of places, local institutions, labor
markets, and groups of firms rather than single firms. They are why theeconomic map has organized itself into scores of local agglomerations: notonly biotech in Boston, information technology in Silicon Valley, andentertainment in Hollywood most famously, but also horse trailermanufacturing in north Texas, marine technologies in eastern NorthCarolina, and wine in southern Washington.
At the same time, clusters reflect the messy, synergistic dynamics of
practical business activity inside the ‘‘black box’’ of innovation development.
Clusters, that is, entail not just individual actors and inputs but how groups
of those actors and institutions organize themselves and interact within thegiven conditions to produce efficiency and value. In that fashion, the dynamicsof clustering encompass a broad array of synergies, ‘‘knowledge spillovers,’’transactions, and relationships among firms, customers, and other actors thatproduce mutual benefit, generate firm and industry efficiency, and reflect theintense, constantly changing interconnectedness of real-world local economies.
Along these lines, economists have long recognized the presence of
‘‘agglomeration’’ forces that pull businesses and people into local places andenhance their productivity.
12As long ago as 1890, Alfred Marshall was
noticing that firms in a particular trade tended to locate near each other inHow Regional Innovation Clusters can Foster the Next Economy 103
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the industrial districts of England, and suggested this was because they
could derive mutual advantage from such dynamics as labor marketpooling, supplier specialization, and knowledge spillovers.
Recently many others have described other ways that clusters provide
efficiency to firms and markets. Porter stresses the importance of localclusters in easing the management of modern value chains, in which morefirms contract out not just traditional parts production or support servicesbut manufacturing, IT system management, training, design, and R&D(Porter, 1990 ). Maryann Feldman notes that clusters foster innovation
because they foster knowledge exchange among firms, colleagues, rivals, andknowledge institutions like universities in close proximity (see Audretsch &
Feldman, 2004; Feldman, 1994, 2002 ). And for that matter others observe
that strong clusters foster entrepreneurship by enhancing the range anddiversity of firm creation, generating more ideas for start-up companies, andreducing the costs of starting a new business (see Delgado, Porter, & Stern,
2010a, 2010b ;Porter, 1998b ;Saxenian, 1994 ).
The collaboration-enhanced dynamism bred by industry clusters is today
helping to unlock the innovative and creative power in U.S. regions.
Colorado’s cluster of roughly 1,500 cleantech companies relies heavily
on the region’s top-flight universities like the Colorado School of Mines –
the only university in the nation to offer baccalaureate through doctoral
degrees in all key energy fields – to supply a skilled and highly specializedworkforce.
In Kansas, the Wichita area has built up over decades a comprehensive
network of over 200 precision machine shops, tool and die firms, and othersubcontract manufacturers within and outside of the aerospace industrydesignation that can quickly and cheaply provide every necessary part forairplane manufacturing.
13These suppliers keep manufacturing costs down
by eliminating the need for each plant to buy highly specialized equipmentor pay to ship parts from around the world.
And in central Indiana established pharmaceutical giants like Eli Lilly and
Company support and benefit from active entrepreneurship to driveinnovation in the region’s life science cluster. Through the cluster initiativeBioCrossroads, industry works collaboratively with government, philan-thropy, and other partners to provide seed investments and businessdevelopment assistance to entrepreneurs and form new enterprises to address
specific cluster needs, including the sharing and management of clinical data
and R&D.
14To date, BioCrossroads has supported over 250 start-up
companies and new nonprofit enterprises to build on the region’s existingbase, which now includes over 8,000 skilled workers across 50 contractMARK MURO AND BRUCE KATZ 104
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research and manufacturing companies that serve regional industry anchors
as well as broader markets.
Speaking more generally, academic re search has tended to associate the
presence of clusters with enhanced and regional job and wage growth. For years
studies have indicated a positive correla tion between cluster concentrations and
patenting (see e.g., Audretsch & Feldman, 1996 ;Jaffe, Trajtenberg, & Rebecca,
1993;Sonn & Storper, 2008 ). Likewise, work going back two decades has
increasingly suggested that clusters e ncourage new firm development, increase
wages in an industry, and enhance regional economic productivity and broader
performance.15
Select Industry, Local, State, and Federal Actors already
Engage in Cluster Efforts
In keeping with all of this, meanwhile, a variety of organized efforts –regional cluster initiatives and even government-sponsored initiativeprograms – have grown up around the world and in the United States topromote cluster competitiveness through a variety of collaborative activitiesamong cluster participants.
As a group, such cluster initiatives seek to compensate for the fact that the
unattended marketplace will generate too few of such efforts given thepresence of multiple market failures, given the partially shared, quasi-publicgoods nature of clusters, within which no individual actor can capture all ofthe benefits of participation given that ideas leak, workers are shared, andsuppliers can sell to multiple buyers.
In that fashion, such initiatives may engage in industry strategy-setting,
sponsor education and training activities, encourage relationship building,
or facilitate market development through joint market assessment and
marketing, among many other efforts.
16Most notably, with little or no past
federal support, numerous U.S. regions and states today operate severalhundred distinct cluster initiatives – formally organized efforts to facilitatecluster growth.
17These initiatives – whether operated through state
governments or regional development partnerships – have proliferated overthe past 15 years in every sort of setting and sector: urban and rural, coastaland noncoastal, high-tech and manufacturing. Extremely varied, these
‘‘bottom-up’’ efforts to boost regional performance seek to address
particular ‘‘binding constraints’’ on cluster growth through such activitiesas: convening cluster participants; making available relevant clusterinformation; encouraging networking within the cluster; facilitating marketHow Regional Innovation Clusters can Foster the Next Economy 105
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development; fostering innovation and its diffusion; sponsoring more
relevant and contextual education and training activities; and representingcluster interests (Mills et al., 1998).
In that sense, the nation’s assortment of locally or state-developed cluster
initiatives speaks directly to what goes on within the ‘‘black box’’ ofinnovation. Likewise, these initiatives represent an important effort to addressthe ‘‘missing middle’’ of economic management with practical initiatives tocorrect inefficiencies or shortcomings in the way local networks, institutions,and resources come together to support business activity ( Table 1 ).
And now the federal government and a new crop of pragmatic
gubernatorial candidates have entered the arena.
Having remained largely absent from the realm of cluster initiative
programs over two decades, for their part, the federal executive, andmost recently Congress have embraced ‘‘regional innovation clusters’’ (RICs)as a new framework for structuring the nation’s economic developmentactivities.
This embrace began tentatively and has grown. Initially, through its FY
2010 budget proposal, the Obama administration requested a modest $50million for a cluster initiative program through which the EconomicTable 1. A Comparison of Economic Development Models.
Dimension Traditional Economic
DevelopmentCluster-Based Economic
Development
Economic
doctrineNeoclassical economics Innovation and institutionalist
economics
Key actors Individual firms Groups of firms
Key tools Policies for the general business
environment – tax and
regulatory regimes, R&Dinvestments, etc.Policies to support clusters,
core institutions, networkbuilding, etc.
Policies to benefit individual
firms – loan guarantees,targeted procurementpolicies, etc.
Key process for
economicgrowthMarkets allocating capital and
labor inputs efficientlyRegional ecosystems engaging
firms, financiers, universities,and other institutions ininnovative activity
Role of
governmentProvider of inputs and
macroeconomic managementProvider of information;
facilitator of collaborative,public–private partnershipsMARK MURO AND BRUCE KATZ 106
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Development Administration (EDA) would launch a program to award
small competitive grants to regional cluster initiatives along with a newcluster information and research center.
18Congressional appropriators
trimmed the program drastically but seemed to welcome the new direction
(seeReamer & Muro, 2009 ).
Recently, the administration has sought to expand its offerings by seeking
to apply cluster approaches to multiple federal programs rather than
anchoring them in a single discrete program. In August, for example, theDepartment of Energy (DOE) announced the winner of its Energy RegionalInnovation Cluster (E-RIC) competition, which will provide up to $130million from 7 cooperating agencies to a Philadelphia-based consortium thatwill surround the start-up of a DOE energy innovation hub focused on
building efficiency technologies with an array of resources aimed at
connecting the research core to the surrounding regional economy.
19The
multiagency final format of the initially stand-alone hub represented anincreased focus in the second year of the Obama administration on regionalinnovation systems (see Muro, 2010a, 2010b ).
Along these lines, the current proposals for FY 2011 – now being
adjudicated in Congress – treat regional industry networks less as a‘‘program’’ and more as an operating system for multiple activities and a
means for linking and aligning multiple federal interventions to maximize
their impact in support of regional prosperity (see Rahman & Muro, 2010 ).
As a group, they tend to support strategic, cluster-informed regionalplanning, align new funding flows and resources toward established industryclusters, and explicitly link various communities, such as workforcedevelopment practitioners and university researchers, to facilitate cluster-based job growth, entrepreneurship, and technology transfer.
In this fashion, at least five agencies are now engaged in a more pervasive
embrace of cluster policy in the 2011 budget cycle:
/C15The EDA’s proposed $75 million Regional Innovation Clusters program
would provide regional planning and matching grants focused on
leveraging regions’ competitive strengths to boost job creation andeconomic growth.
20
/C15The Small Business Administration (SBA) would support EDA’s clustereffort by directing a proposed $11 million toward promoting greater smallbusiness participation in regional clusters by better coordinatingits resources for business counseling, training, and mentor-prote ´ge´
partnerships.
21How Regional Innovation Clusters can Foster the Next Economy 107
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Table 2. Recent Cluster-Supporting Federal Policy Efforts by the Obama Administration.
Lead Agency Program Description Status
Economic
Development
Administration
(EDA)Regional innovation
clusters
frameworkRepresents a new cross-agency framework
for federal economic developmentassistance to target and align funding to
well-developed regional strategies thatprioritize institutional collaboration
and leverage core regional strengthsThe first implementation is the Energy
Regional Innovation Cluster (E-RIC)program discussed below
For more information, seewww.eda.gov/AboutEDA/RIC/
EDA I6 challenge Supports entrepreneurs and eliminate
barriers to commercialization withinregional innovation ecosystems through
a $12 million competitive grant
administered by the EDA in partnershipwith the National Institutes of Healthand the National Science Foundation
(NSF)Award announcements to occur
in Fall 2010
For more information, see
www.eda.gov/i6
Small Business
Administration(SBA)Regional innovation
clusters programProvides up to $600,000 for business
training, technology transfer, andmentoring services to self-identified
regional clusters that have in place thepartnerships, technical capacity, andother assets necessary for small business
growthAward announcements to occur
in Fall 2010For more information, see
www.sba.gov/clusters/
SBA Advanced defense
technology
programAwards up to $600,000 to support and
grow small businesses in regionalinnovation clusters focused on advanced
robotics, cyber-security, appliedlightweight materials, and other criticaldefense needs identified in conjunction
with the Department of DefenseAward announcements to occur
in Fall 2010For more information, see
www.sba.gov/clusters/MARK MURO AND BRUCE KATZ 108
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Department of
Energy (DOE)Energy Efficient
Building Systems
RegionalInnovationCluster (E-RIC)Connects DOE, EDA, SBA, NSF, the
Department of Commerce’sManufacturing Extension Partnership,the Department of Labor, and theDepartment of Education in joint
funding opportunity of up to $130
million over five years to support aregional research center that developsand commercializes new building
energy efficiency technologies and
engages partners to promote broaderregional energy cluster growthAward announced in August 2010 to
Philadelphia-based research consortiumFor more information, see http://
www.energy.gov/hubs/eric.htm
U.S. Department of
Agriculture(USDA)Rural innovation
initiativeSeeks to pilot strategic regional planning
that connects rural communities to corelocal and metropolitan assets andopportunities through a $176 million
fund that pools and coordinates a share
of resources from existing USDAprogramsProposed in the Administration’s FY2011
budget requestFor more information, see p. 14 of theUSDA budget summary: http://
www.obpa.usda.gov/budsum/FY11budsum.pdf
NSF NSF innovation
ecosystemsAims to support regional clusters around
universities with $12 million directed atincreasing the impact of promisinginnovations through commercialization,industry alliances, and start-up
formationProposed in the Administration’s FY2011
budget request
For more information, see p. 4 of theNSF budget summary: http://
www.nsf.gov/about/budget/fy2011/pdf/
01-Overview_fy2011.pdfHow Regional Innovation Clusters can Foster the Next Economy 109
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/C15The Department of Labor (DOL) would use its newly proposed
Workforce Innovation Fund (of up to an estimated $108 million) to helpensure that the workforce development system also aligns with regionalcluster growth by facilitating regional collaboration among training and
employment services providers and stronger linkages with employers so
that worker training leads to good jobs ( Table 2 ).
22
/C15The Department of Agriculture’s (USDA) budget request calls for aRegional Innovation Initiative to align federal resources to promote moreeconomic opportunities in rural communities and have greater regionalimpact. To support this approach, USDA plans to set-aside roughly 5%of the funding from approximately 20 existing programs and allocatethese funds competitively among regional pilot projects tailored to local
needs and opportunities. Although not specifically focused on industry
clusters, the $1.4 million proposed for regional planning activities and$135 million expected for project implementation from new USDA set-asides does seem to provide yet another avenue for regional clustersupport and development (while also dispensing with the myth thatclusters are only ‘‘urban’’).
23
/C15The National Science Foundation (NSF) plans to invest $12 million topromote new ‘‘NSF Innovation Ecosystems’’ as a part of its existing $19.2
million Partnerships for Innovation program. The new ‘‘innovation
ecosystem’’ component aims to support regional innovation clustersaround universities by engaging faculty and students across all disciplinesin efforts to increase the impact of promising innovations throughcommercialization, industry alliances, and start-up formation.
24
Congressional action on these budget proposals is ongoing. Also worth
noting is the inclusion of a regional innovation clusters section in theAmerica COMPETES Reauthorization Act of 2010, which passed theHouse in June and the Senate Commerce, Science and TransportationCommittee in July.
25
At the same time, governors and gubernatorial candidates of both parties
are maintaining or stepping up their interest in cluster-led strategies andinvestments across administrations. For example, both Arizona’s ScienceFoundation Arizona and Ohio’s Third Frontier were initiated by governors
of one party (Democratic in the former; Republican in the latter) as vehicles
for cluster-based, innovation-oriented economic development and contin-ued to successfully operate and even expand under subsequent governor-ships by the other party.
26MARK MURO AND BRUCE KATZ 110
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Meanwhile, the bi-partisan consensus is being extended by leading candidates
in the 2010 election. In Colorado, Mic higan, New York, and Tennessee, for
example, John Hickenloope r, Rick Snyder, Andrew Cuomo, and Bill Haslam all
suggest tailoring state economic and wor kforce development strategies to the
distinct business clusters of different regions. Hickenlooper and Cuomo are
Democrats; Snyder and Haslam are Republicans. Haslam, the current Mayor ofKnoxville, has even called f or ‘‘regional jobs base camps’’ to coordinate disparate
investments in the service of unified strategies.
In sum, the year 2010 represents an important juncture for U.S. economic
development. On display are a series of new initiatives that assume that theAmerican economy is regional; that regional industry networks and clustersare a defining aspect of its organization; and that clusters of firms and other
actors and their interactions are a proper object of national economic policy.
REGIONAL INNOVATION CLUSTERS: WHY NOW?
All of which begs the question: Why now? What makes regional innovation
clusters so relevant to national policy debates just now – years after manydevelopment professionals had already succumbed to ‘‘cluster fatigue.’’
Clusters, after all, are not the latest or most avant-garde economic
development concept. Nor do they offer the blunt, self-evident drama orcontroversy of the extraordinary actions the Obama administration took tostabilize the nation’s financial markets and restart lending in the winter of2009 or to directly stimulate the economy with the Recovery Act of 2009and the ‘‘bailouts’’ of the auto companies.
And yet, the fact is that clusters have emerged now as a major paradigm for
national, state, and metropolitan economic steerage for three principle reasons.
/C15First, new research has provided added evidence that clusters on the
ground promise solid economic benefits at a time of economic uncertainty.
/C15Second, at the paradigmatic level, clusters reflect the nature of the real
economy , which means that thinking about them and leveraging them can
help the nation get clearer about the true sources of growth after years ofdiversion.
/C15And third, clusters and cluster thinking offer a compelling framework
within which to rethink, reorganize, and reform federal, state, and regional
economic development efforts.
For each of these reasons clusters and cluster approaches hold out
substantial attractions as the nation seeks to rebuild a damaged economy:How Regional Innovation Clusters can Foster the Next Economy 111
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Impact: New Research Holds Out the Possibility of Improved
Economic Performance
The first reason for clusters’ new relevance is that of straight economic benefit.
New research in the past few years has firmed up the literature on the value of
clusters to workers, firms, and regions. It is now broadly affirmed that strongclusters foster innovation and entrepreneurship and deliver positive benefitsto industries, workers, and regions. In light of this, significant new empiricalresearch suggests the potential of vibrant local clusters to help deliver high-quality, productive growth in the medium term in several ways:
/C15Innovation . Recent work on innovation, for example, has reiterated that
firms and inventors located in clusters are significantly more inventive.
Baptista and Swann determined recently that manufacturing firms in theUnited Kingdom were significantly more likely to innovate if own-sectoremployment in their home region is strong ( Baptista & Swann, 1998 ).
Sonn and Storper have determined that U.S. inventors increasingly usedomestic knowledge more than foreign knowledge and knowledge fromthe same metropolitan area than knowledge from outside ( Sonn &
Storper, 2008 ). And Aharanson, Baum, and Feldman recently found that
firms in the Canadian biotechnology industry are as much as eight timesmore innovative when located in clusters with strong specializations intheir own technology ( Aharanson, Baum, & Feldman, 2004 ). In this
connection, Aharanson, Baum, and Feldman observe that clusters inparticular fields can produce highly efficient ‘‘learning environments’’ inwhich firms score innovative gains even from the R&D efforts of otherfirms. They conclude that evidence is mounting that knowledge flows andspillovers associated with industrial clustering are critical to innovation
and the geographic distribution of economic value creation.
/C15Entrepreneurship . New work has also moved beyond innovation to the role
of regional clusters in new firm formation, growth, and survival. Looking at
metropolitan New York, for example, Rosenthal and Strange have shownthat new firm starts and employment increase with the density of localemployment in an entrepreneur’s industry ( Rosenthal & Strange, 2005 ).
They show these effects are significant and drop off quickly with distance.Likewise, Wennberg and Lindqvist studied all ‘‘new economy’’ firms started
in Sweden between 1993 and 2002 and found that location within a cluster
had strong positive effects on the survival of new firms ( Wennberg &
Lindqvist, 2008 ). Cluster-embedded start-ups also generated more jobs,
higher tax payments, and higher wages. Finally, Delgado, Porter, and SternMARK MURO AND BRUCE KATZ 112
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recently analyzed data from the Census Bureau’s Longitudinal Business
Database and located significant evidence of the positive impact of clusterson entrepreneurship. They find that industries located in regions with strongclusters experience higher growth in new business formation and start-up
employment. They report further that strong clusters are also associated with
the formation of new establishments of existing firms and start-up survival.
/C15Firms and industries . More broadly, clusters are being confirmed to foster
productivity and growth. Across 218 metropolitan areas, Henderson foundthat the presence of other firms in the same industry and the same countydramatically increases firm productivity ( Henderson, 2003 ).
27Nakamura
finds that clustering is positively and significantly associated with higherproductivity in Japan and the United Kingdom for manufacturing, retail,
and wholesale industries as well as finance ( Nakamura, 2008 ). And in a
comprehensive analysis of the Canadian economy Spencer and others have
determined that the geographical clusters in economic activities leads tosuperior industrial performance. Most notably, this inquiry concludes thatwhen industries locate in an urban region with a critical mass of relatedindustries they tend to generate both higher incomes and rates ofemployment growth ( Spencer, Vinodrai, Gertler, & Wolfe, 2010 ).
/C15Regions . Finally, recent evidence continues to suggest that the strength of
local clusters strongly influences the performance of regional economies.Delgado, Porter, and Stern find that the relative strength of a U.S.region’s leading clusters contributes to the employment and patent growthof other clusters in the region ( Delgado, Porter, & Stern, 2008 ). Similarly,
Spencer and others conclude that city regions with a higher percentage ofemployment in clusters have enjoyed better economic performance(as reflected in income levels and employment growth) than places inwhich cluster-based employment is less prevalent ( Spencer et al., 2010).
One reason for clusters’ increased saliency, then, is the fact that industry
clusters are increasingly being seen to have a quantifiable and beneficial impacton economic performance at the firm, industry, and regional level. That noconsensus exists in the economic literature about the wisdom or proper designof specific cluster policies cannot, therefore, alter either the fact of clusters’increasingly recognized importance or the renewed interest of policymakers.
Further, increasing the new interest in clusters as a source of improved
economic performance, finally, is the spreading embrace of cluster policyand cluster initiatives by dozens of competitor nations around the world.Fully 26 of the 27 member countries of the European Union (EU) havecluster policies in place as do Norway, Switzerland, Turkey, Iceland, andHow Regional Innovation Clusters can Foster the Next Economy 113
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Israel – five non-EU countries also tracked by the European Cluster
Observatory (ECO), an organization that maintains data on and maps all ofEurope’s 2,000 identified clusters. By January 2008, a total of 69 nationalcluster programs had been identified by the ECO.
28Japan, for its part,
supported 102 industry clusters in FY 2009 with a f30 billion (over $300
million at 2009 exchange rates) budget through its Industrial Cluster Projectand Knowledge Cluster Initiative, both first launched in 2001, whichsupport government-university-industry linkages.
29
Paradigm: Clusters Reflect the Nature of the Real Economy
But there are other reasons for clusters’ special relevance now. At the level ofparadigm, for example, clusters represent a timely and useful conceptual lens,because at a moment of uncertainty about the sources and dynamics of futuregrowth these local industry concentrations represent a powerful, groundedway to understand the nature and workings of the real economy. Clusters, inshort, help clarify what matters in economic affairs (after a period of delusion
and over-simplification) and point in several useful directions:
/C15Regional underpinnings. To begin with, the cluster framework reveals and
emphasizes the regional nature of the economy. Until recently, very little
national or state economic thinking recognized the centrality to thenation’s economic outcomes of its regional economies ( Muro, Katz,
Rahman, & Warren, 2008 ; see also Drabenstott, 2006 ). Instead, attention
has been focused on either the macroperformance of the nation or on thefortunes of individual industries or firms. However, because physicalproximity and locally bounded exchanges matter so much to their
workings, clusters highlight the importance of geography, space, and
regions in the structure of the national economy. Clusters, in that sense,make unavoidable the fact that locations matter. And the truth that flowsfrom that recognition is critical: As Michael Porter writes, ‘‘There is nonational economy ybut a series of regional economies that trade with
each other and the rest of the world’’ ( Porter, 2009 )
/C15Local specialization and variation . A related virtue of the cluster paradigm is
that it moves to the forefront the variation, diversity, and myriad local
specializations of the productive economy. In this connection, a focus on
clusters highlights not just that regions matter, but that every region consistsof a unique local economy with its own array of traded clusters, regionaladvantages, and starting points. This too is a welcome aspect of a clusterMARK MURO AND BRUCE KATZ 114
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focus. For too long, too much national and state policy discussion has
assumed a development landscape across the nation that is largelyhomogeneous ( Drabenstott, 2006 ). All that really mattered, in this view,
was getting the general business environment right, keeping taxes at the right
(low) level, and providing some basic inputs such as R&D, access to capital,
education, or infrastructure. Yet America’s production economy is not sosimple or homogeneous (even if sameness rules the consumption map!).Instead, whereas a home is a home and a Wal-Mart a Wal-Mart on theconsumption side, Wichita’s aviation-focused production economy in theMidwest varies sharply from Michigan’s, with its emerging focus on batteriesand electricity storage, and Colorado’s, with its heavy orientation towardmilitary and space applications. What’s more, Denver’s green economy
looks very different from St. Louis’ and Sacramento’s and for that matter
Philadelphia’s. And for good reason: Different regions have differentstarting points, different past choices, different natural and institutionaladvantages, different human capital inheritances, different specializations,different development opportunities and needs. To see the reality of thosedifferences playing out witness the highly uneven extent of the recenteconomic recession and recovery as logged by the most recent edition of theBrookings Institution’s MetroMonitor index of metropolitan economic
performance (see Howard & Richard, 2010 ). In short, the present focus on
clusters makes clear not just that the national economy is a series of regionaleconomies busily engaged in trade, but that each regional economy has aparticular array of specializations that drive both local productivity andgrowth in the national economy (Porter, 2009).
/C15Regional institutional exchanges and dynamics . Finally, clusters represent a
valuable paradigm for thinking about the economy just now because theydirect attention to the true richness of regional economies’ myriad actors and
their exchanges – a crucial source of local and national efficiency,
productivity, and growth. Standard economic doctrine (even after the recentfinancial system crash) tends to neglect such considerations, and to conceiveof the economy as a vast equilibrium of individual, profit-maximizing firmsacting in narrow self-interest. As a result, very little attention has been paid tothe specific mechanics of how innovation and jobs can arise from the intense,place-based interactions of firms, suppliers, workers, universities, tradeassociations, investors, and governments (See Mills et al., 1998 ;Muro et al.,
2008; Porter, 2009). By contrast, cluster discussions simultaneously widen
and narrow the focus. Cluster discussions widen the focus because they directattention away from isolated individual firms and toward groups of firms,networks of actors, and interactions among companies and institutions,How Regional Innovation Clusters can Foster the Next Economy 115
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whether intentional as in their supply chain relationships or unintentional
through random knowledge spillovers or workforce sharing. This emphasismakes it easier to see that large firms and tiny start-ups, large researchuniversities and local community colleges, multinational corporations and
tiny start-ups are all part of the same intricate local web of firms, suppliers,
and institutions that needs to be cared for comprehensively. At the sametime, cluster inquiries narrow and refine the focus. This is because suchdiscourse dwells on the microeconomics of particular, specialized localindustry groupings. For that reason, cluster discussions may begin withbroad discussions of the general business environment (e.g., interest rates, taxrates, labor rules) but they tend to dwell on finer-grained, cluster-specificfactors (e.g. the presence of particular types of suppliers, particular
types of workers, particular university research programs).
30This imulta-
neous widening and narrowing of the discussion will surely be useful
for sharpening future debates on how best to go about rebuilding theAmerican economy.
In short, regionalism and cluster thinking provide a useful framework for
rethinking key tenets of a sometimes obtuse recent economic consensus.
Policy: Clusters provide a framework for rethinking
and refocusing economic policy
Finally, clusters provide a timely framework for rethinking and refocusingeconomic policy after a period of drift. In this way, the cluster paradigmyields practical insights that can help policymakers at the federal, state, orlevel rethink their priorities right and maximize the impacts of their effortsat a time of constrained resources. Along these lines, cluster thinkingappeals because it:
/C15Puts the policy focus on regions . To be sure, attention to the general
business environment and national macroeconomic steerage will always
be critical. But the cluster framework has the useful benefit of directingpolicymakers’ attention to regions and to the regional locus of growth andproductivity, which has too long been neglected.
/C15Draws attention to the ‘‘missing middle’’ and what’s inside the ‘‘black
box.’’ In like fashion, where recent economic policy has tended to
neglect the ‘‘meso’’ level and the inner workings of the ‘‘black box’’ of
innovation, the cluster paradigm renders a service because it focuses policy-makers on the grainier real-world dynamics of regional economies – laborMARK MURO AND BRUCE KATZ 116
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market pooling, supply-chain interactions, knowledge spillovers, how
institutions, firms, and other actors interact. These dynamics providecrucial leverage points for those seeking to maximize economicperformance and represent a timely new focus for policy after years of
disdain for the messier practical processes by which value and advantage
are created.
/C15Highlights variation and the need to allow local discretion . Cluster
frameworks also counter the one-size-fits-all outlook of so much recentdevelopment policy. Because the local dynamics of every cluster areunique, the cluster paradigm requires policymakers to take into accountand nurture local differences. In this respect, since clusters vary fromindustry to industry and region to region neither national nor state
development strategies nor cluster strategies can work top-down, through
a single template. Instead, each region and each cluster must craft its owncompetitive strategy, recognizing that clusters and regions can developonly by exploiting their distinct economic advantages and seizing theirunique opportunities in rapidly shifting markets.
31Given that, the cluster
paradigm reminds leaders that the federal government and the states canhelp regions execute smart cluster-oriented initiatives but as MarkDrabenstott says, ‘‘the real answers ylie in the regions themselves.’’
This too has important and timely ramifications for policy.
/C15Provides a vehicle for policy coordination and efficiency . Clusters, finally,
throw into relief the need to coordinate fragmented policy offerings andmaximize the impact of federal and state investments at a moment ofbudgetary crisis. Currently, thousands of separate federal and state programsexist to carry out export promotion, clean energy deployment, innovationstrategies, workforce training, entrepreneurship support, capital access,infrastructure investment, technical assistance, and regional planning and
information strategies. However, after decades of proliferation, the resulting
accumulation of programs has become what Mills, Reynolds, and Reamercall ‘‘wildly ad hoc, idiosyncratic, and uncoordinated’’ (see Mills et al., 1998).The result: Substantial investments in innovation, infrastructure, humancapital, or placemaking to rarely have the kind of market-shaping effect thatpolicymakers and taxpayers want and expect. And so a focus on clusters hasthe welcome potential to bring order out of the programmatic chaos.Clusters generate powerful synergies in local economies by organizing,
matching, and linking the key actors and assets, and they can do that with
government programs too. Therefore, the implementation of existing andnew federal and state programs should be carried out to the greatest extentpossible in ways that maximize the ease with which retrofitted or newHow Regional Innovation Clusters can Foster the Next Economy 117
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programs can be accessed by local cluster initiatives, coordinated with other
offerings, and aligned with the needs of the cluster. Along those lines, bygiving priority in grants or other benefits to applicants engaged in clusterdevelopment and seeking to ease the coordination of programs at the local
level governments will gain a powerful mechanism for drawing disparate
programs and policies together into an overall strategy for improvedcompetitiveness and maximum return.
In short, while cluster strategies are not new and remain subject to debate, as
the Organization for Economic Cooperation and Development (OECD) putsit, a moment of renewed interest in U.S. policy circles coincides with a time ofnational and regional need, questioning, and experiment ( Organization for
Economic Cooperation and Development, 2007 ).
Anxiety about the sources of future growth has drawn attention to new
empirical evidence that industry concentrations lead to increased innova-
tion, greater entrepreneurship, and improved regional economic perfor-
mance. Calls by business leaders and many economists for a new growthmodel in the wake of the recession have highlighted the distinctiveness andcentrality of metropolitan economies. And finally, federal, state, regional,and private-sector policymakers everywhere are intrigued by the potential ofcluster strategies to deliver not only improved economic results but alsogreater policy impact. Such leaders are looking for strategies that can ‘‘helpmaintain employment and promote restructuring and adaptation’’ across
multiple sectors, as the OECD says, but they also suspect clusters offer a
convenient, grounded, and low-cost organizing mechanism by which tofocus resources, build partnerships, and maximize efficiency and impact.
Such a convergence makes it clear ‘‘cluster fatigue’’ has been replaced or
complemented by something of a ‘‘cluster moment’’ – a juncture in which realpromise exists for a new recognition of the centrality of regions, the importanceof clusters, and the need to swing siloed federal, state, and local programsbehind those realities.
REGIONAL INNOVATION CLUSTERS:
WHAT’S NEXT?
So a new moment has arrived for regional industry concentrations. Yet ifthat’s true, it has only begun to take shape. And so the next several yearsoffer an important opportunity to make regional innovation clusters andspatial thinking a core element of economic policy and action through astuteMARK MURO AND BRUCE KATZ 118
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analysis and implementation across all levels of U.S. government and in
partnership with the private sector.
What will it take to ensure this moment is leveraged to maximum effect?
Certainly it will require smart, collaborative policy innovation at all levels of
government – federal, state, and local – and in the private sector. Given that
the cluster paradigm speaks to the way all manner of actors and inputs cometogether in regions, all tiers of government, all kinds of organizations, andall sectors of the economy will have roles to play in any further embrace ofcluster strategies in the United States.
To succeed, however, such a furthered embrace of the cluster approach
will ideally feature a mutually supportive pull or push in similar directionsamong myriad actors.
In keeping with that, it seems worthwhile to review a few general
principles for productive pro-cluster activity going forward before examin-ing some opportunities for leveraging the power of clusters at the variouslevels of government.
Policymakers at All Levels Should Abide by Some General Principles
As cluster-led strategies and policies grow in number and importance, thereare several guiding principles that should be taken into account. These rangefrom the cautionary to the methodological to the practical and include suchcore admonishments as these:
/C15Do not try to create clusters . Cluster initiatives, to begin with, should only
be attempted where clusters already exist. Clusters cannot be created out
of nothing (see Porter, 1998a, 2000 ). In fact, there exists virtually no
evidence that government policies are capable of successfully creatingclusters in particular locations where none previously existed.
32Instead,
it is quite clear that efforts at wholesale invention will be fraught withinefficiency, selection issues, and likely failure and waste. On thecontrary, the preexistence of a cluster means that an industry hot spothas passed the market test. It is a sign that the requisite conditions andcapacities are present to support industry growth. To that extent,the best policy advice for fostering clusters is probably that of Joe
Cortright: Communities and governments should ‘‘focus on establishing
the right conditions for new industry clusters to emerge],’’ andthen recognize and nurture ‘‘those clusters that establish themselves’’(Cortright, 2006 ).How Regional Innovation Clusters can Foster the Next Economy 119
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/C15Use data and analysis to target interventions, drive design, and track
performance . Cluster strategies or policy interventions – when attempted –
should be grounded in empirical information and analysis so that decisionmakers can make objective assessments about the competitive prospects
of different regional industry concentrations. Unfortunately, of course,
American economic development tends to be highly influenced by an ever-changing mix of interest group agendas and economic development fads,whether it be the life sciences, stadiums, the ‘‘creative’’ class, or ‘‘greenjobs.’’ Yet to be successful, cluster development needs to focus its work ontruly viable, distinctive, and competitive specializations. And that requiresa strong empirical platform. Crucial to that platform, meanwhile, areempirics of three sorts. First, objective market analysis is necessary to
document the natural presence of clusters, their global market position-ing, and the possible relevance of cluster-oriented development initiatives.Second, fine-grained information about local clusters’ institutional or
resource deficiencies is essential to target and bound proposed interven-
tions. And third, cluster strategies need to be held accountable, soperformance measurement is critical. On this front, key indicators of
cluster performance (jobs created, firms established or grown, investmentattracted, market share increased) needs to be collected and analyzed over
time so the efficacy of investments and efforts can be objectively assessed.
/C15Focus cluster initiatives on clusters where there is objectively measured
evidence of under-capacity . At a time of short resources and potential
parasitism, cluster initiatives must be tightly focused. Given that, work toupgrade a cluster once a cluster has been identified should be tightlyfocused on attacking specific, documented constraints, institutionaldeficiencies, or resource shortcomings. In this fashion, public expenditureson cluster initiatives should be contingent on painstaking, transparent
quantitative analysis of the cluster’s specific needs ( Porter, 1998a ). Such
needs may entail shortcomings in the level or quality of R&D; problems
with the practical skills of the local workforce; or particular institutionalproblems or flaws in local government policy implementation. In anyevent, cluster strategies and initiatives should only be attempted wherethey can be tuned to fine-grained problem-solving in a cluster.
/C15Maximize impact by leveraging cluster-relevant preexisting approaches,programs and initiatives . ‘‘Clusters’’ and cluster strategies – correctly
viewed – ought to be less a matter of programs and policy products thana paradigm through which to inform, draw in, and organize multipleactivities. Specific, targeted cluster-oriented programs and initiatives areclearly justifiable, but the equal value and added impact may well comefrom drawing other, more generally relevant programs into the clusterMARK MURO AND BRUCE KATZ 120
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orbit. For that reason, a new round of experimentation with cluster
initiatives, strategies, and programs should seek as much to leverageexisting programs and activities as invent new ones. To that extent,efforts to improve the general business environment in and around the
cluster may well represent a lead aspect of a serious cluster push.
Likewise, ongoing initiatives to improve tech-transfer in a region mayloom large to a particular cluster. And on it goes. At the federal level,programs like the R&D tax credit as well as SBIR and SBTT grants,patent and intellectual property law, and multiple workforce training,small business finance, and regional development programs may allrightly be viewed as ‘‘cluster’’ programs in particular cases. At the statelevel, banking regulations and tax credits for venture capital are relevant
to potential financing gaps, whereas education policy, land use regula-
tions, and infrastructure issues all touch on issues relevant to clusters. Andat the regional and local level, zoning policies or transportation initiativesmay be relevant ‘‘cluster’’ issues since they may affect the access ofworkers to industry concentrations. In this sense, much of the newround of cluster strategy should entail not specific new ‘‘cluster’’ programsand initiatives but robust efforts (informed by cluster analysis) to ensurea supply of high-quality cluster inputs and build up basic public and
quasi-public goods that have a significant impact on many linked
businesses.
33
/C15Align efforts ‘‘vertically’’ as well as horizontally . One of the attractions of
cluster strategies is that they offer a plausible, grounded basis fororganizing the disconnected policy offerings of any one level ofgovernment in service of clusters’ needs in each region. Such ‘‘horizontal’’coordination must be counted one of the most important strengths ofcluster policy. Going forward, though, another need will come to the fore:
that of ‘‘vertical’’ program alignment. That is, with federal, state, and
local governments and development organizations all now in the clusterbusiness, such vertical coordination of economic development offeringsup and down the tiers of federalism will become increasingly important toavoid policy conflict, redundancy, or missed opportunities for synergy.Most notably, the coming start-up of new federal efforts will need – if it isto have maximum effect – to leverage the myriad efforts that states andregions already have in place. In this respect, utilizing cluster strategies to
deliver on the promise of synergy and efficiency is going to require
thought about how federal, state, and local development efforts can becoordinated to serve a single end: regional cluster growth. Ideally,national, state, and regional adoption of cluster paradigms and strategieswill be mutually supportive and aimed in the same direction.How Regional Innovation Clusters can Foster the Next Economy 121
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/C15Let the private sector lead . Finally, care should be taken to keep private
industry in the lead on cluster strategy. Clustering is a dynamic of the private
economy in the presence of public goods, and so cluster strategy should be
pursued with humility as a matter of supp orting, connecting, filling gaps, and
removing obstacles. Along these lines , as Michael Porter writes, ‘‘active
government participation in a privatel y led effort, rather than an initiative
controlled by the government, will h ave a better chance of success’’ ( Porter,
2000). Companies, as Porter writes, ‘‘can usually better identify the obstacles
and constraints (as well as the opportunities) in their paths.’’ Companies oftenpossess the latest information on market trends, innovation opportunities, andthe latest developments. Cluster strate gy should be pursued as a collaborative
undertaking led by industry and defined by market signals.
With these general principles in mind, then, all levels of government have
enormous opportunities for policy innovation before them – opportunitiesmade urgent by the nation’s current near- and long-term economicchallenges.
In this respect, while it is clear that the private sector in places such as
Albuquerque, Wichita, and Cleveland will lead the nation’s economicrenewal, smart, targeted government action to support innovation clustersthere and elsewhere will also be critical to improve the general businessenvironment, address gaps in local innovation systems, and knit togethersupports for clusters.
To that end, all tiers of the nation’s federalist system have roles to play in
advancing the co-development of such a new cluster- and region-aware
stance in the U.S. economic policy. In keeping with that, a rough division of
labor among the tiers of government can be envisioned.
Federal Policymakers can Provide a Base of Useful Resources
for Cluster Practitioners Nationwide
It goes without saying that a top priority for federal action must be toproperly design and crisply roll out its newly authorized and appropriatedcluster programs. Top-flight implementation must always be a watchword.
But beyond that, the federal government should move in the coming years to:
/C15build the information base on clusters;
/C15ensure that effective forums for best practice sharing and coordination arecreated;
/C15build the capacity of regional cluster intermediaries;MARK MURO AND BRUCE KATZ 122
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/C15employ cluster paradigms in work on major national challenges;
/C15develop a forum for coordinating disparate cluster-relevant programs;
and
/C15make it all visible.
Such steps are the way to a successfully integrate the cluster paradigm
into U.S. economic management for the long haul.
To start with, the federal government should place a heavy emphasis on
assembling and disseminating a rich information base on the location,
market characteristics, and dynamics of the nation’s industry clusters, asrecommended in the Brookings paper ‘‘Clusters and Competiveness’’ ( Mills
et al., 1998 ).
Objective, detailed data and other information – including on best
practices and policy innovations – will be essential if American regions andintermediaries are to successfully design and employ cluster strategies, or ifgovernments are to target existing programs on promising clusters. Yet onlythe federal government and its national partners have the reach andauthority to create uniform, fine-grained datasets that can inform state andmetropolitan decision making. And so the federal government – perhaps
through partnerships with top outside experts – should seek to fund and
execute a state-of-the-art cluster data and analysis enterprise.
One such effort will soon be underway with the selection of an expert
team to execute a $1.5 million innovation cluster ‘‘mapping’’ project for theEDA.
34
But much more work is needed. Such mapping, to begin with, needs to
be utilized soon to build a registry of designated clusters and clustercharacteristics that could then be used to guide investment decisions,
both of the government and private sector. Beyond that, as Andrew
Reamer has argued, it is critical that the nation rebuild and enhance thedegraded federal statistical system more generally so as to allow timelier,finer-grain analysis of regional economic dynamics (see Reamer, 2009 ). In
any event, the benefit of federal information efforts is clear. Such effortswill at once enhance the quality of local cluster initiatives and proposalsand improve government decision making about clusters, regionaleconomies, and proposed interventions. At a minimum, such information
will compel federal and local leaders to compare and contrast their
clusters of strength objectively with those in other communities and evencountries, and focus their efforts on clusters in which they see objectiveadvantage.How Regional Innovation Clusters can Foster the Next Economy 123
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Besides information, though, information dissemination is crucial. For
that reason, a second priority at the federal level should be to ensure robust
learning forums exist for the exchange of cluster best practices and
innovative new strategies. Cluster strategies have largely arisen as ground-
up phenomenon, with little direction or cataloging by the federal
government. This is quintessential American entrepreneurialism. But thefield has evolved to the point where, at a minimum, best practices andinnovative new ones – in policy, investments, monitoring and measurement,and governance – can be distilled and shared for the enhancement ofpractice. To this end the government – without itself running such a forum –should see what can be done to ensure there exists a robust, widely accessiblelearning forum or network for assessing, diffusing, and promoting the best
and most innovative cluster strategies. Such a network – operated perhaps
by external nonprofit, academic, or think-tank partners – could be anchoredby a core forum that would hold convenings on a regular basis to discussinnovations in cluster policy and practice. Such forums can be vital to helpfields grow and evolve and for the peer-to-peer transfer of learnings andknowledge. The forum could also be an occasion to unveil an annual awardfor the most innovative, collaborative, or successful regional clusterstrategy, somewhat in the manner of the EDA’s new i6 Challenge
competition or more broadly like the Malcolm Baldrige National Quality
Award.
35Prizes are a proven way to accelerate innovation across firms,
institutions, and places ( Kalil, 2006 ).
Relatedly, the federal government should continue its push to build the
capacity of the critical intermediating organizations that tend to design and
deliver the nation’s cluster initiatives and strategies. Technical assistanceand planning grants will be critical.
A fourth priority is more substantial: The federal government should
employ cluster strategies to achieve key national goals . In this fashion, a
national government cognizant of cluster dynamics throughout its economicdealings should most certainly consider the relevant cluster structuresrelevant to advancing its top-priority efforts to renew the economy.
The Obama administration, for example, has set a goal of the nation
doubling its exports over the next five years. Such an achievement could becentral to a broader economic recovery, which is why the administration hasdeveloped a National Export Initiative (NEI) to deliver on that goal. And so
cluster strategies should become a key tool for executing NEI. Regional
clusters, for example, could become a key analytic and targeting element ofthe Department of Commerce’s promising Global Emerging Market Strategy(‘‘GEMS’’), which seeks to connect American firms to second-tier cities andMARK MURO AND BRUCE KATZ 124
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metros in fast-growing nations like China, India, and Brazil. Likewise,
Department of Commerce (DOC) also has expressed significant interest inhelping cities and metropolitan areas design and implement export initiativesthat are tailored to the specific attributes of different communities. Similar
cluster-focused strategies should be applied in the clean energy and
innovation arenas, whether to foster the growth of clean tech clusters in theauto-impacted Great Lakes and Mountain West regions; assist with disasterrecovery along the Gulf Coast; or repurpose regional military and defenseinstallations, like Florida’s Space Coast which will need to transition to neweconomic avenues once NASA’s Shuttle Program winds down.
A fourth related strategy for the federal government must be to create
forums and mechanisms for coordinating its own policy offerings and those
of others, both horizontally and vertically. Work on coordinating thevarious cluster activities of federal agencies will soon begin with the launchof a multiagency Taskforce for Advancing Regional Innovation Clusters(TARIC). TARIC will function most immediately as something of amultiagency SWAT team tasked with bringing a cluster view to bear onlarge national or regional problems or opportunities. For example, TARICwill be a central point for attack for marshalling existing efforts in supportof regional clusters, whether they reside at the EDA, the International Trade
Administration, the National Institute of Standards and Technology
(NIST), the SBA, the DOL, or the Department of Education. But TARICwill also provide a needed forum for drawing together disparate programofferings, breaking down silos, and supporting integrated implementation.In this way, TARIC may help with the work of horizontal programintegration.
More tricky will be the task of making sure federal efforts link well
with related state and local efforts, given that states and regions themselves
have already invested significantly to support their own industry clusters.
Mechanisms need to be developed to ensure that federal programs ideally
support, rather than disrupt or duplicate state or local initiatives. Perhaps
the federal government should host an annual Federalist Forum in concertwith constituency organizations like the National Governors Association,the State Science and Technology Institute, or the International EconomicDevelopment Council to discuss smart ways for locating synergies in clusterpolicy and practice.
Finally, the Obama administration should make it all formal – and
prominent. Recognizing the moment and the significance of the paradigmshift now underway, the White House should consider issuing an executive
order or comparable policy statement to pull together the administration’sHow Regional Innovation Clusters can Foster the Next Economy 125
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theory of the case and articulate the disparate policy and programmatic
elements that comprise federal cluster policy. In this respect, the policystatement could reflect and relate to other critical policy statements in theexports and innovation fields. This would be a strong affirmation of the
notion that the time for ‘‘meso’’ and regional economic policy has arrived.
State Policymakers should Strategically Invest Their Own
Resources in Cluster-Led Economic Development
But a true pivot to more regionalist, cluster-oriented economic management
will not happen solely or even mostly by dint of federal initiative. Stategovernment, regions themselves, and of course the private sector all matterequally or more.
States, especially, are in many respects the lead federalist actors on
cluster-led economic development.
The states have important resources of their own to invest strategically
and ample powers to shape their own economic destinies. They conducttheir own trade missions to drum business for key exporting firms as well asattract foreign direct investment. And they have been directing funds toresearch centers, education and training programs, incubators, andindustrial parks aimed at fortifying their strongest sectors ‘‘since beforethe term ‘cluster’ entered the policy vernacular,’’ as Stuart Rosenfeld haswritten ( Rosenfeld, 2007 ).
Thus, while the federal government can set a national platform for
identifying clusters and implementing cluster led economic policies, thestates are likely to continue to be the vanguard of policy innovation in thisarea.
Most notably, they can:
/C15make clusters a central component of economic development planning;
/C15target strategic investments on clusters of state significance; and
/C15adjust metropolitan governance to ease regional collaboration.
First, states can make clusters a central component of state economic
planning, building on the campaign promises of many leading candidatesfor governor.
To be sure, many states have already assumed a leadership role in funding
innovation and cluster strategies in the absence of past federal clusterssupport ( National Governor’s Association and Pew Center on the States,
2007).MARK MURO AND BRUCE KATZ 126
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But now there lies ahead an opportunity to build dramatically upon
existing cluster efforts and advance the current regionalist drift by
implementing the current round of campaign promises in the early part ofthe coming new administrations.
And so the next class of new governors has a chance to bring the full
power of state government behind efforts to derive state advantage frompolicies that increase the power of metropolitan area clusters to accelerateeconomic growth. In that vein, governors and their transitions this fallshould make cluster paradigms and mapping central to their administra-tions’ economic development activities, make sure an adequate fact baseexists for policymaking, and direct representatives from multiple stateagencies to work closely with business leaders, universities, and local and
metropolitan government officials on cluster strategies that meet rigorous
criteria.
Some of these initiatives could also have a spatially targeted component,
particularly with regard to clusters that naturally congregate aroundinstitutions of advanced learning or logistical hubs like ports and airports.In this regard, the Ohio Department of Development’s Hubs of Innovationand Opportunity initiative, launched in January 2010, could serve as amodel for many states for the way it competitively designates ‘‘hubs,’’ like
Toledo’s Solar Energy Innovation Hub and Cleveland’s Health and
Technology Corridor Hub, for state grants and technical assistance tobuild on regional anchor institutions and core industry strengths to growclusters of connected businesses, encourage new private investments, andattract a talented workforce.
36
Given the current moment of economic distress, it might make sense for
incoming governors to organize jobs cabinets, oriented to boosting regionalperformance through cluster strategies, with clear lines of authority and
responsibility so that these cross-agency actions can be carried out in a
collaborative manner.
A second state-level initiative would be for states to target strategic
investments on clusters of state significance . Such investment targeting has
already been the methodology of Pennsylvania’s Industry Partnership programand Georgia’s WorkReady Regions effort, and it is the practice followed inGermany, where the state government of Bavaria has for more than a decademade strategic investments to facilitate sustained, long-term success in key
regional industries. There, the state helped to found the Munich-area biotech
initiative, BioM, which establishes networks between industry, research, start-ups, and the financial world; provides seed capital for new ventures; andsupports new incubators to accelerate new bio-business formation. Further,How Regional Innovation Clusters can Foster the Next Economy 127
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the Bavarian State Government’s High-Tech-Initiative launched a ‘‘software
offensive’’ focused on research, development, and training to enhance theregion’s information and communications technology cluster ( Duell, 2006 ).
The current fiscal situation, of course, will likely complicate new investment.
The incoming crop of governors will face daunting fiscal challenges, requiringthem to grow and reorient their economies while practicing austerity ingovernment. Yet states often couple cuts in state spending with separateappeals to voters to invest in high priority initiatives. Earlier this year, forexample, Ohio’s Governor Ted Strickland successfully balanced the budgetwhile, at the same time, helping to push through a $700 million bond issue thatextended the Third Frontier program, the state’s principal vehicle forinvestments in technological innovation ( Restoring Prosperity, 2010 ;Tom
Breckenridge, 2010 ). A similar use of ballot referenda could be used in other
states to invest in particular promising clusters. It goes without saying that suchinvestments should be guided by fine-grained close analysis of the specific assetgaps or binding constraints impeding cluster growth.
Third, states can compel changes in metropolitan governance in the service
of cluster strategies. In the end, all cities and municipalities are creatures ofstate law. Public universities and community colleges also depend on thestates for substantial portions of their budgets. And administrative bodies like
workforce investment boards also have their administrative boundaries set by
the state.
In view of that, states (like the federal government in its sphere) can use
incentives in the allocation of resources to entice entities to collaboratetogether on cluster-related activities. States governments, for example, canuse cluster information as a criterion in awarding R&D grants, or they canset aside funds for applications involving three or more partners, or makedevelopment awards or workforce training investments contingent on the
presence of a well-designed cluster strategy. Given the current fiscal climate,
however, it might make sense for the state to consolidate administrativeentities wherever possible to achieve a true metropolitan focus on clustersand the strategies that support them.
At any rate, the role of the states is going to be important: in a dynamic
republic like the United States, state innovations matter a lot.
In the 1990s, for example, a first generation of state experiments and
implementation in the 1990s has informed today’s belated but significant
federal embrace of cluster paradigms and strategies. Now, it is likely that a new
round of state experimentation and implementation on regional innovationclusters will serve as a new prod and test-bed for federal implementation in thecoming years.MARK MURO AND BRUCE KATZ 128
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Regional Leaders should Identify Cluster Challenges
and Coordinate Cluster Actors
Metropolitan areas and nearby rural regions, finally, are ultimately the
places where clustering transpires, and so what happens at the regional or
local-government level matters inordinately. Yet the needed work at thislevel is frequently less about direct government action and more aboutidentifying specific cluster constraints or challenges and then coordinatingthe activities of relevant actors and networks to remedy them.
Therefore, regional actors and cluster intermediaries should redouble
their efforts now to:
/C15describe local clusters and identify their binding constraints; and
/C15facilitate regional joint action.
To the first point, the most fundamental responsibility of regional cluster
participants and intermediaries themselves must be to rigorously identify
local clusters’ binding constraints.
How is this? Such a role flows from the fact that while cluster
interventions need to be targeted to address only specific documented
performance challenges, only regional actors and participants will likely be
able to identify those constraints in detail.
Such analyses require fine-grained, often proprietary or first-hand
knowledge and analysis. Consequently, it is regional actors and cluster
participants who will be best positioned to supplement the coming federalcluster inventory with the latest local data, first-person survey information,and real-time market intelligence so as to pinpoint the cluster’s institutionaldeficiencies or true resource needs. The bottom line: The most basiccontribution of regional actors to a smart national cluster push going
forward will be to develop rigorous, objective accounts of local clusters’
crucial shortcomings. These will become the basis for collective action.
Otherwise, regions are preeminently the geography within which the
bottom-up mutual aid efforts of clusters are organized, and so the other topactivity of regional actors will continue to be to ensure the strong self-organization of regional joint action in the region’s cluster.
Cluster leadership can be taken by different entities or leaders at different
times. In greater Louisville, existing clusters in logistics and transportation and
health care get a boost from the Metro Chamber of Commerce facilitating
collaborative relationships with industry players.
37The private sector also
takes a lead in Detroit, where the trade association Automation Alley providestechnology-oriented companies with linkages to regional resources andHow Regional Innovation Clusters can Foster the Next Economy 129
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international export markets to accelerate the commercialization and market
transfer of new high-tech products and services.38Meanwhile, universities are
key cluster leaders, engaged in collaborative R&D and other joint innovationefforts, in both Colorado and San Diego, where the Colorado Renewable
Energy Collaboratory spurs cleantech growth in the former, and CONNECT
enhances biotech, wireless, and other technology sector growth in the latter.
39
And while philanthropy plays a crucial role in Northeast Ohio to support theeconomic competitiveness of regional biosciences, clean energy, and advancedmanufacturing industries, it is the metropolitan planning organization in PugetSound that identifies growing and emerging high-impact industry clusters andtargets resources to them.
40
Going forward, these and other region-oriented entities must and will
continue to take a lead in defining the next generating of emergent bestpractices in cluster-based initiatives and policymaking. For example, leadersin San Diego and Seattle are stepping up to support the linkage of existingclusters to new growing sectors – wireless health, born of the biotech andwireless tech companies in the former, and interactive media, arising from thedesign and IT industry concentrations in the latter.
41Likewise, the artisanal
cheese cluster in Vermont and a nascent aging care industry in Louisville areexamples of regions carving out niches where their firms and assets can add
specialized value within broader industries – in these cases, dairy and health
care, respectively ( Regional Technology Strategies, 2009). And finally, regional
leaders in Northeast Ohio and along Florida’s Space Coast showcase proactiveefforts to tune existing industry concentrations – in these cases auto-relatedsuppliers and NASA-affiliated contractors, respectively – to new marketopportunities in growing sectors like clean energy and homeland security.
42
Local Policymakers should bring to Tools to Influence On-the-Ground
Implementation of Cluster-Oriented Economic Development
In many cities and metropolitan areas, city managers, mayors and otherlocal-elected officials can play a critical convening role, tasking key leaders inthe community to commence cluster analyses and form strategic partner-ships that take on cluster-related activities. For example, city governments inboth San Jose and Philadelphia are taking a lead in analyzing and advancing
the green economy in their respective cities and regions through activities
like establishing a cleantech incubator and coordinating how to leveragefederal dollars in expanding retrofit markets and commercializing anddeploying new energy efficiency technologies and services.
43MARK MURO AND BRUCE KATZ 130
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In these and other places, mayors and county executives bring valuable
tools to the table for actually implementing cluster-oriented economic
development on-the-ground. Most notably, they can:
/C15determine the physical infrastructure in which an industry cluster exists and
/C15spot the broader demographic and social context in which new industry
clusters might form and to which existing ones must adjust.
For starters, local officials control and manage the zoning and permitting
issues that can determine how quickly, where, what kind of infrastructure
exists to support the growth and development regional industry clusters. Atthe same time, local leaders are also more likely than other communityleaders to see the broader demographic and social context within which
economic clusters nest.
In fact, the broader context may actually provide the fuel for the formation of
new and increasingly important clusters in sectors like health care. In many citiesand metropolitan areas, for example, the demographics of aging are juxtaposedwith the demographics of diversity. As the country ages, it is expected that theexplosion of jobs in the home health-care arena will be filled by immigrantsworking, perhaps, for immigrant entrep reneurs. Mayors and county leaders can
play an important role in spotting the demographic underpinnings of business
trends and take the steps necessary to ensure that these natural consumption
clusters emerge in a way that provides quality care, generates quality jobs andrealizes the potential of savings from elderly individuals avoiding earlyinstitutionalization. Political leadership to connect the dots between hospitals,emerging firms, labor market intermedia ries like community colleges and other
interested and supporting parties could be critical.
CONCLUSION
Clusters and cluster strategies have surfaced again in economic policydiscourse because they have the potential to accelerate regional economicgrowth and assist with the nation’s needed economic restructuring.
More a paradigm than a program, clusters are neither a shiny new fad, a
silver bullet, nor ethereal, but instead hold out practical value to businesses,workers, and policymakers alike as all seek lasting new sources of
productive growth at a moment of economic uncertainty.
At a time of tepid growth, cluster strategies possess documented power to
help power regional economic growth by boosting innovation, entrepreneur-
ship, wages, employment, and business specialization.How Regional Innovation Clusters can Foster the Next Economy 131
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At a time of shaken confidence in past growth models, cluster frameworks
point to the centrality to national wellbeing of practical economic systems in
regions, and so offer a fresh paradigm for rethinking national economic
management.
And finally, as a policy framework clusters provide a practical tool for
policy coordination and increased return on public investments. Just as
clusters deliver significant productivity advantages to groups of firms,suppliers, and related actors and institutions that draw mutual advantagefrom locating near each other, so too, do cluster-oriented initiatives allowfor coordinated efforts, maximized impact through realized synergies, andthe tuning of interventions to the needs of the real economy in real places.
Such opportunities for impact, clarification about what matters, and the
coordination of disparate efforts for greater impact will grow only moreimportant in the coming era of intensified competitive pressure andstraightened circumstances.
.
ABOUT THE METROPOLITAN POLICY PROGRAM
AT BROOKINGS
Created in 1996, the Metropolitan Policy Program provides decision-makers with cutting-edge research and policy ideas for improving thehealth and prosperity of metropolitan areas including their componentcities, suburbs, and rural areas. To learn more visit www.brookings.
edu/metro .
For more information
Mark Muro
Senior Fellow and Policy Director
Metropolitan Policy Program at Brookings
202-797-6315|mmuro@brookings.edu
NOTES
1. Among the major economists who have called for a new growth model is
Lawrence Summers, director of the National Economic Council in the Obama
administration ( Summers, 2009 ). Earlier, in 2007, Summers alluded to the importanceMARK MURO AND BRUCE KATZ 132
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of clusters and wrote that ‘‘we need to support clusters of extraordinary performance.’’
In a blog post, he continued: ‘‘Rather than focus on each individual as an island unto
him or herself, the U.S. needs to focus on fostering clusters of innovation – such asSilicon Valley in information technology, Boston in the life sciences, New York infinance – where each talented individual derives his or her strength from all that is
around.’’ See Larry Summers, ‘‘America must not surrender its lead in life sciences,’’
FT.com/Economists Forum, January 29, 2007. Retrieved from http://blogs.ft.com/
economistsforum/2007/01/america-must-nohtml/ Among major commentators who
have supported the importance of clusters and public as well as private efforts to
bolster them is David Brooks of The New York Times . See David Brooks, ‘‘An
Innovation Agenda.’’ The New York Times, December 7, 2009; and also David
Brooks, ‘‘The Long Strategy.’’ The New York Times, July 26, 2010. Finally, the
Brookings Institution, the Center for American Progress, and the Council on
Competitiveness have each highlighted the importance of regional industry andinnovation clusters ( Mills, Reynolds, & Reamer, 2008 ; see also Jonathan Sallet, Ed
Paisley, & Justin Masterman, 2009 ; see also Council on Competitiveness, 2010 ).
2. For a review of these developments, see National Economic Council (2009) .
3. Summers decried the excesses and lack of balance of the recent U.S. growth
model in ‘‘Rescuing and Rebuilding the U.S. Economy. Other voices have alsocritiqued past growth frameworks and policy stances for promoting excess
consumption, neglecting production, and embracing a too-simple laissez-faire that
has ignored the important role of market failures, institutions, and the interactions ofvarious actors (see, e.g., Atkinson, 2006 ;Katz, 2010 ;Tassey, 2009 ).
4. For a thorough review of cluster definitions, micro-economics, and other
literature see Joseph Cortright (2006) . For another full treatment of the intellectual
roots of cluster thinking, see also Porter (1998a, 1998b) .
5. Employment and establishment data are 2008 estimates from the Bureau of
Labor Statistics’ Quarterly Census of Employment and Wages, Aerospace Productsand Parts Manufacturing (NAICS 3364). Employment through 2009 fell to 35,000and establishments grew to 126.
6. Office of Gov. Bill Ritter, Jr. (2010) .
7. Team NEO, ‘‘Cleveland plus quarterly economic review.’’ Vol. 3, issue 1,
March 2009.
8. Research from the Federal Reserve Bank of Philadelphia, for instance, notes that
patents not only proliferate markedly with increased employment density but tend to
be cited within the same metropolitan area (see Gerald Carlino, Satyajit Chatterjee, &
Robert Hunt, 2006 ). Likewise, Acs and Mueller (2008) , for their part, found that 40%
of high impact ‘‘gazelle’’ firms are located in only 20 metro areas, generally the largest.Ciccone and Hall established the relationship between the density of economic activity
and labor productivity when they found that more than half of the variance in outputper worker across states could be explained by differences in employment density(seeCiccone & Hall, 1996 ). For general discussions of ‘‘agglomeration economies’’
(see, among others, Edward Glaeser et al., 1992 ;Rosenthal & Strange, 2004 ).
9. Brookings analysis of output data from the Bureau of Economic Analysis
Regional Economic Accounts (2008); new firm births data from the Small BusinessAdministration’s Office of Advocacy (2006); and granted patents data from the U.S.
Patent and Trademark Office (2008).How Regional Innovation Clusters can Foster the Next Economy 133
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10. For a trenchant review of how such policy preferences reflect deep-seated
economic doctrines and especially those of the long neoclassical tradition see
Atkinson and Audretsch (2008) .
11. This definition is adapted from that provided in Mills et al. (1998) .
12. Economists have long acknowledged the presence of agglomeration forces that
pull businesses and people into cities and enhance their productivity. At the broadestlevel, irrespective of industries, economists call these agglomeration forces ‘‘urbaniza-tion economies.’’ The theory underpinning urbanization economics is most stronglyassociated with Jane Jacobs, with empirical support from Glaeser and colleagues and
more rigorous theoretical grounding in Lucas. For reviews of the urbanization
literature see Duranton and Diego (2004) . Yet cluster thinking goes beyond
urbanization to what economists call ‘‘localization’’ – the notion that important
benefits accrue not just to geographic concentrations of business generally but to
concentrations within a particular field. At first glance, it is difficult to distinguish
urbanization per se from clustering, or ‘‘localization.’’ However, a rich economicsliterature now deals with this distinction and contends that important benefits do
arise specifically from localization, or clustering. See, for example, such thorough
reviews of the ‘‘location’’ literature as Rosenthal and Strange (2004) andCortright
(2006) .
13. See Greater Wichita Economic Development Council, ‘‘Key Industries:
Aerospace.’’ Retrieved from www.gwedc.org/key_industries-aerospace.php , accessed
on September 2010.
14. For an overview of BioCrossroads’ activities, see ‘‘BioCrossroads Overview.’’
Retrieved from www.biocrossroads.com/UserFiles/File/2010-BioCrossroads-Over-
view.pdf (2010). For a detailed look at the contract discovery and development
interrelationships in Indiana (see BioCrossroads, 2008 )
15. See Saxenian, Regional Advantage, for early discussions of clusters’ support of
entrepreneurship. On wages (see Gibbs & Bernat Jr., 1997 ;William Wheaton & Lewlis,
2002). On the influence of clusters on broader regional economic performance, see
Porter (2003) .
16. Academic opinion about the wisdom and efficacy of government engagement
in cluster initiatives or cluster initiative programming remains skeptical. AlthoughMichael Porter and many European analysts insist on the need for limited butsignificant government intervention to support clusters, some prominent urbaneconomists either believe that competitive clusters emerge organically and see no role
for government intervention, or remain suspect of the government’s ability to design
and implement an effective cluster policy. There is widespread agreement, however,that pervasive market failures prevent clusters from reaching or maintaining their
optimal size; the debate is whether or not these can be effectively redressed. For a
positive view of government and specifically federal engagement see Porter (2009).For a skeptical consideration see Gilles Duranton (2009) .
17. Obtaining an accurate inventory of U.S. cluster initiatives remains extremely
difficult. In correspondence on August 25, 2010, Dr. Christian Ketels of theInstitute for Strategy and Competitiveness’ Cluster Mapping Project and theEuropean Cluster Observatory suggested a lower bound of 150 active clusterinitiatives in the United States, based on information from a 2005 survey. In
Europe, where greater funding for cluster activities is available, the observatoryMARK MURO AND BRUCE KATZ 134
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tallies 1,300 initiatives. Ketels and colleagues have identified approximately 100
cluster initiatives in Japan that have received funding through the two major
government cluster programs.
18. See Budget in Brief, FY 2010 (U.S. Department of Commerce), pp. 33 and 38.
Retrieved from http://www.osec.doc.gov/bmi/BUDGET/10BIB/2010%20bud
get%20in%20brief%20final.pdf
19. The Department of Energy website for the E-RIC building sciences hub is
www.energy.gov/hubs/eric.htm . The press release for the final award to a
Philadelphia-based consortia is available at www.energy.gov/news/9380.htm
20.The Department of Commerce Budget in Brief: Fiscal Year 2011 (Department
of Commerce, 2010), pp. 2, 41, and 46. Retrieved from www.osec.doc.gov/bmi/
budget/11BiB/2011_BiB.pdf
21.Proposed Budget for Fiscal Year 2011: Small Business Administration (Office of
Management and Budget, 2010), p. 136. Retrieved from www.sba.gov/idc/groups/
public/documents/sba_homepage/serv_budget_proposal_fy2011.pdf
22. Employment and Training Administration, FY 2011 Congressional Budget
Justification (Department of Labor, 2010), pp. 4 and 17. Retrieved from
www.dol.gov/dol/budget/2011/PDF/CBJ-2011-V1-03.pdf
23.FY 2011 Budget Summary and Annual Performance (Department of Agriculture,
2010), p. 14. Retrieved from www.obpa.usda.gov/budsum/FY11budsum.pdf
24.NSF FY 2011 Budget Request to Congress (National Science Foundation,
2010), p. 4. Available at www.nsf.gov/about/budget/fy2011/pdf/01-Overview_
fy2011.pdf
25.America COMPETES Reauthorization Act of 2010 , H.R.5116, 111 Cong. 2
Sess (Government Printing Office, 2010). Retrieved from http://thomas.loc.gov/cgi-
bin/bdquery/z?d111:H.R.5116 : See also Muro and Rahman (2010) .
26. For more information on Science Foundation Arizona, see www.sfaz.org/
default.aspx ; on Ohio’s Third Frontier, see www.development.ohio.gov/ohiothird-
frontier/Default.htm
27. In addition to correcting for potential endogeneity with various instrumental
variable strategies, Henderson uses plant level data, which allows him to account for
unmeasured firm characteristics. Henderson’s paper has been called a model study
and ‘‘closest to the ideal’’ by reviewers in the Handbook of Urban Economics.
28. Oxford Research, ‘‘Cluster Policy in Europe’’ European Cluster Observatory,
January 2008. Retrieved from www.clusterobservatory.eu/upload/Synthesis_report_
cluster_mapping.pdf
29. Japan’s Ministry of Economy, Trade, and Industry (METI) ‘‘Industrial
Cluster Project: Collaboration with the Ministry of Education, Culture, Sports,
Science, and Technology (MEXT) Knowledge Cluster Initiative.’’ Retrieved from
www.cluster.gr.jp/en/plan/cooperate.html
30. Porter (2009) distinguishes between important ‘‘factor inputs’’ like physical
infrastructure, the legal system, and more general university programs that all firms
draw on in competition and more ‘‘specialized factors’’ critical to particular cluster
areas such as a ‘‘specialized research institute.’’ He notes that the latter are not onlynecessary to attain high levels of productivity but also tend to be less tradable oravailable from elsewhere.
31. This is a critical point of both Cortright (2006) andDrabenstott (2006) .How Regional Innovation Clusters can Foster the Next Economy 135
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32. Class van der Linde (2003) finds evidence of only one successful ‘‘whole-cloth’’
cluster creation by policy (in Hinshu, Taiwan) in a survey of more than 700 clusters.
33. Michael Porter makes this point in Porter (1998a) .
34. See the Announcement of a Federal Funding Opportunity for the EDA’s
‘‘Mapping Regional Innovation Clusters Project’’ competition. Retrieved from
www.eda.gov/PDF/Cluster%20mapping%20FFO%20FINAL.pdf
35. For information on the i6 Challenge see: www.eda.gov/i6
36. For more information, see http://development.ohio.gov/newsroom/2010PR/
January/18.htm andwww.development.ohio.gov/newsroom/2010PR/September/2.htm
37. For more information, see www.greaterlouisville.com/networks/
38. For more information, see www.automationalley.com/
39. For more information on the Colorado Collaboratory, see www.colorado-
collaboratory.org/ ; on CONNECT, see www.connect.org/
40. For more information on Northeast Ohio’s Fund for Our Economic Future, see
www.futurefundneo.org/ ; on the Puget Sound Regional Council, see http://psrc.org/
41. For more information on San Diego’s wireless health cluster, see www.
wirelesslifesciences.org/ ; on Seattle’s interactive media cluster, see Hudson (2008) .
42. For more information about economic tran sition and transformation in Northeast
Ohio, see www.nortechenergy.org/ ; in Florida’s Space Coast, see www.spaceflorida.gov/
43. For more information on San Jose’s Environmental Business Cluster
incubator, see www.environmentalcluster.org/index.htm ; on Philadelphia’s efforts
see ‘‘Philadelphia, Surrounding Counties Win $25 million grant for Innovative
Energy Efficiency Program.’’ Retrieved from http://cityofphiladelphia.wordpress.com/
2010/04/22/philadelphia-surrounding-counties-win-25-million-grant-for-innovative-
energy-efficiency-program/ (September 2010) and Muro and Rahman (2010) .
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