Competitiveness Study: Economic Success Rooted in Public-Private Regional Efforts

Week of December 31, 2001
Snapshot from the Field

Competitiveness Study:

Economic Success Rooted in
Public-Private Regional Efforts

By JACK LYNE
Site Selection Executive Editor of Interactive Publishing

WASHINGTON, D.C. -- Cluster and high tech:
Those words tend to fuse, knee-jerk fashion, during numerous discussions in corporate location and economic development circles. "High-tech cluster" can sometimes sound as if it's both the alpha and omega of the whole site selection/economic development business.
Only one wee problem there: It's simply not true. At least that's the verdict from Clusters of Innovation: Regional Foundations of U.S. Competitiveness, a two-year study sponsored by the Council on Competitiveness (COC at www.compete.org) and released at last month's National Clusters of Innovation Conference.
Mind you, clusters are important, the study says: "Strong and competitive clusters are a critical component of a good business environment and are the driving force behind regional innovation and rising productivity." But high-tech clusters are a very small part of the story, it contends.
"High-tech jobs account for a small percentage of jobs and wages in most regional economies," said the study, released last month in Washington, D.C., in a conference jointly held by the COC and the National Governors Assn. (www.nga.org).
The study allowed, however, that "several types of clusters are especially innovative: communications equipment, analytical instruments, biotechnology/pharmaceuticals and information technology. These clusters are very productive, and pay high wages, and regions with strength in these clusters certainly benefit from their presence."
That, however, didn't blunt the study's verdict on high-tech clusters: "The overall impact of these clusters on a regional economy is usually relatively small.
"In order to meaningfully increase overall regional prosperity," says the study, "innovative capacity must be built in many clusters. . . . Successful regions do not pick winners, but build on their inherited assets (e.g., geography, climate, population, research centers, companies, governmental organizations), to create specialized economies that both differ from other regions and offer comparative advantages to local companies."

'Traded Industries' Are 'Dynamic Core'

Harvard University professor Michael Porter (pictured above), who authored the COC report, called the research "unprecedented in its scope and reliance on previously unavailable data."

The conclusions from Clusters of Innovation come from in-depth studies of 15 business clusters in five "pilot regions" - Atlanta; Pittsburgh; North Carolina's Research Triangle; Wichita, Kan.; and San Diego.
Michael Porter, the Harvard University professor who authored the report, called the research "unprecedented in its scope and reliance on previously unavailable data." The study employed Porter's definition of a cluster: "a geographic concentration of competing and cooperating companies, suppliers, service providers, and associated institutions."
Clusters of Innovation found that regional economies are composed of three types of industries: "traded, resource-driven and local."
Local industries account for the majority of employment in regional economies, the study found. However, "the dynamic core of a regional economy," it said, rests in traded industries like business services, financial services, education and knowledge creation, transportation and logistics, and hospitality and tourism. "Higher wages in traded clusters tended to pull up wages in local clusters."

Michigan Gov. John Engler (left in photo above), who chairs the National Governors Assn., called the COC report "a valuable road map for state economic development strategies that can create globally competitive states in the 21st century." Seated beside Engler at the conference at which the study was released is BellSouth Chairman and CEO Duane Ackerman, co-chair of the Clusters of Innovation Initiative.

The study contains numerous implications for economic development strategy. Michigan Gov. John Engler, chair of the National Governors Assn., called the report "a valuable road map for state economic development strategies that can create globally competitive states in the 21st century."
But the states won't be strategizing by themselves. At least not if they're following the Clusters of Innovation playbook. The study's overarching theme in that area is that that economic competitiveness is firmly rooted in public- and private-sector efforts that are focused on regions.
"The real locus for competitiveness and innovation in the United States is regional, not in Washington," said Porter. "National policies contribute to the overall environment for innovation, but success in innovation is heavily influenced by local conditions."

Political Jurisdictions Are
The Wrong Boundary Lines

Working the partnership with Monitor Group, ontheFRONTIER, and Harvard's Cluster Mapping Project, the COC has released a report that resists easy summation.
The national report - which excludes the five regional reports - alone covers 132 pages. COC Chairman Raymond Gilmartin, who is chairman, president and CEO of Merck & Co., called the study "perhaps the most ambitious project in the nearly 20-year history of the Council on Competitiveness."
Here's a brief look at a few of the other findings from the ambitious and voluminous Clusters of Innovation study:
Many boundaries not drawn to best effect: The study found that turf wars are antithetical to competitive strength. "Regions have a tendency to follow political jurisdictions and omit important surrounding areas and assets," it contends. "A broader, geographic definition widens opportunities and brings constituencies together."
It's Not About Just Growth: The study also runs counter to the many economic development strategies that trumpet job and population increases as the ultimate measures of success. "The economic goal for regions should be a high and rising standard of living," according to Clusters of Innovation.

Business Is the Critical Player

Anchor Companies' 'Disproportionate Role': "The study particularly emphasizes "anchor companies' disproportionate role . . . in seeding cluster development." Says the study, "Anchor companies support cluster development by acting as magnets for other major companies; organizing other companies in the cluster for collective action; supporting projects that improve the local quality of life; and producing numerous spin-out companies, which strengthen key elements of the cluster."
What Government Should Do . . . : Federal, state, and regional and local governments should reshape policy to reflect regional economies' importance, the study contends. The study's many recommended changes in policy include:

Federal level: Allocate federal resources to reinforce regional cluster development; delegate many economic policy choices to regions; provide federal support for the creation of state and local economic development strategies.
State level: Significantly invest in colleges and universities in each of the state's major regions; focus research and training initiatives around regional clusters; employ cluster-based business recruitment strategies.
Regional and local levels: Upgrade both transportation infrastructure and K-12 education; create a conscious regional strategy; foster cluster-specific collaborative institutions.

. . . But Business Is the Critical Player in Cluster Success: "While government can help foster a favorable business environment, companies and industries must ultimately achieve and sustain competitive advantage," the study concludes. "Cluster-specific institutions for collaboration" are one of the tools that the study recommends to keep the private and public sectors, plus academic institutions, on the same page.
Those, again, are only a few of the findings from the very extensive Clusters of Innovation study. The entire study, including the national summary and the five regional reports, is available online in Adobe format at the COC Web site.
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