Industry clusters and economic development.

• Author: Slaper, Timothy

A cluster-based approach starts with the industries and assets that are already present in the region and regional stakeholders pursue initiatives to make those industries better. An approach for creating entirely new clusters in a region is a strategy to improve overall business environment conditions, by upgrading skills, access to finance and infrastructure, by streamlining government rules and regulations, by supporting local demand, and by being open to foreign investment and competition.

While clusters of industries that are present in a region do not necessarily need public sector strategies in order to exist--the industries cluster regardless--the right policies and strategies can help the businesses within a cluster become more successful and competitive. A cluster-based strategy is not, in other words, necessarily organized around attracting large entities from elsewhere.

What Makes a Cluster?

Simply put, industry clusters are regional concentrations of related industries. Clusters consist of companies, suppliers and service providers, as well as government agencies and other institutions that provide education, information, research and technical support to a regional economy. One might say that clusters are a network of economic relationships that create a competitive advantage for the related firms in a particular region. This advantage then becomes an enticement for similar industries and suppliers to those industries to develop or relocate to a region.

Think of it this way: if you wanted to relocate your smartphone application development company from your basement in Loogootee, would you move it to Vermont or to the Bay Area? On the other hand, if you made artisanal cheeses in your barn out back and wanted to expand, would you move to the Bay Area or Vermont? Whether you know it or not, your decision on relocation is informed by the presence of strong industry clusters.

Developing industry clusters has become a key goal for regional economic development as clusters have been shown to strengthen competitiveness by increasing productivity, stimulating innovative new partnerships, even among competitors, and presenting opportunities for entrepreneurial activity. (1) Michael Porter and others have identified which industries tend to cluster together. This serves as the analytical foundation for cluster-based economic development strategies that may target certain types of industries to locate in a region to strengthen a cluster, or they may target regional resources to help bolster a developing cluster. A cluster-based development strategy may not be easy or quick to implement, but the supporting argument is that it beats a piecemeal or scattershot approach to generating jobs. Instead of looking at specific industries or types of companies, cluster analysis detects the potential spillovers of technology, skills and information that cut across industries, workers and resources. (2)

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