The following draws on an article prepared by Ifor Ffowcs-Williams for ‘Economists of the World’, December 2009. It centers on the logic of engaging at a cluster level.
We are all seeking a pathway to economic recovery. Understandably, within each of our countries there is a strong focus on addressing the macro agendas, which creates the potential for competitiveness.
But in addition we need to dig deeper, as wealth itself is actually created at the microeconomic level. It is innovation that drives productivity and competitiveness, and innovative environments have a critical geographic dimension. The all-important flow of tacit information is sticky to a place. Hence we see the continuing importance (even in this globalisation era) of environments such as Silicon Valley. In such dynamic clusters, productivity at the firm level is increased, and there is an environment that stimulates the formation of new businesses. As Professor Porter summarised in ‘Clusters and the New Economics of Competition’:
‘Geographic, cultural, and institutional proximity provides companies with special access, closer relationships, better information, powerful incentives, and other advantages that are difficult to tap from a distance. The more complex, knowledge-based, and dynamic the world economy becomes, the more this is true. Competitive advantage lies increasingly in local things–knowledge, relationships, and motivation–that distant rivals cannot replicate. ‘[1]
Clusters occur naturally. No government agency can claim to have initiated the Hollywood, Bollywood or Wellywood film clusters; the video games cluster in Lyon, France; the country music cluster in Nashville, Tennessee (or in Tamworth, Australia); the sock cluster in Castel Goffreddo, Italy; the perfume bottle cluster in Bresle, France’s ‘Glass Valley’; or the world’s largest second hand book cluster in Hay-on-Wye, Wales.
The tight geography of such clusters needs to be highlighted. Much has been written about the death of distance and the rise of virtual clusters, but eyeballing still remains the key to an innovative milieu, not emailing. In spite of revolutions in communications and transport, proximity matters more than ever for knowledge intensive activities that need face-to-face conversations.
As Richard Florida has succinctly put it in Who’s Your City: “In today’s creative economy, the real source of economic growth comes from the clustering and concentration of talented and productive people.”
Research from OECD and others demonstrates that local economies with strong clusters have higher levels of innovation, more entrepreneurship, more new business start-ups, higher economic growth, higher wages, and better productivity. And such economies are particularly successful in attracting new investment.
Today some 2,500 clustering initiatives are underway around the world. Most European countries and many North American regions have accepted that while clusters start naturally, the development of clusters does not need to be left to chance. Of the European Union’s 31 countries, 26 have national programmes in place to accelerate the development of their local clusters. A common realisation in many countries is that in today’s global environment economic development needs to have a more vital local focus, with a devolution and shift in resources from national agencies to regional/local ones.
Cluster development is a core element in the EU’s Lisbon Agenda; again reflecting that innovation particularly takes place in clusters. The EU’s Aho report, ‘Creating an Innovative Europe’, presents a strategy to create an Innovative Europe requiring a paradigm shift going well beyond the narrow domain of R&D and innovation policy. The report highlights that mobility in organization and knowledge implies cutting across established structures to allow new linkages to be made through technology platforms and clusters:
‘Being part of a cluster is an important competitive strength for business. Clusters help to close the gap between business, research and resources, thereby bringing knowledge faster to the market. Successful clusters promote intense competition along with co-operation. They enhance productivity, attract investment, promote research, strengthen the industrial base, and develop specific products or services and become a focus for developing skills. World-class clusters attract brilliant minds that sustain innovation’.
The World Bank recently released a book on addressing competitiveness in Brazilian cities[2], responding to the question: ‘What can cities do to improve economic performance and create jobs?’ It concludes that to become and stay competitive, cities need to do more than reduce the cost of doing business. A crucial part of the strategy should be to create and sustain an environment that stimulates local firms to innovate and learn from each other, to nurture and facilitate the creation of synergies generated by the presence of interconnected economic clusters in the city, and to provide incentives for all local players to continuously upgrade the level of competitiveness. The World Bank highlights the cluster approach to competitiveness:
‘Facilitating private sector collaborations for collective efficiency—organizing and facilitating private and public institutions to arrive at a common cluster vision; identifying opportunities for growth and collaboration; promoting joint actions such as co-information, co-learning, co-marketing, and co-purchasing; and jointly building economic foundations such as R&D capacities, infrastructure, skills upgrading, and public–private sector support institutions’.
Similarly, the Asian Development Bank has recently summarized: ‘Cluster-based development has become an increasingly attractive topic during the last decade in the field of business competitiveness’ [3].
In many countries there is a major shift occurring in economic development, with support moving from individual companies and narrow industries to support for broader and less distortive cluster based engagements that bring together related industries and companies. Public support for economic development is shifting away from a capital city-centric focus on the macro agenda, with national politicians and agencies becoming more comfortable in empowering and resourcing local actors. The alternative is the capital city drip feeding economic support and struggling in it’s deliberations on projects that are often in dynamic market led environments.
Today many clusters are receiving substantial public support. Following a competition in Sweden, the national technology agency is providing over $1 million a year for 10 years to develop their key clusters, including Bio Uppsala; a functional foods cluster in southern Sweden; and a process ICT cluster close to Lapland. This national funding is being more than matched from local sources. Further funding for many European clusters comes from Brussels where there is a strong focus on linking related clusters across the EU to build the necessary critical mass to address American and Asian competition.
Why this level of support? The logic centres on (1) innovation leading to (2) enhanced productivity, which in turn leads to (3) competitiveness. And the framework for addressing innovation is very much at a regional / local level. Even more specifically, it is at a cluster level. Cluster strength is one of the important determinants of prosperity differences across geographies.
[1]
[2] Competitiveness and Growth in Brazilian Cities: Local Policies and Actions for Innovation, Edited by Ming Zhang, November 2009, World Bank, Washington DC
[3] ‘City cluster development: toward an urban-led development strategy for Asia’. Asian Development Bank, Manila, 2008.
