More State Economic Development Plays

State and local policymakers seeking to fuel economic development should note an irony of the New Economy: While rapid technological advancement has enabled workers and businesses from opposite ends of the earth to work effectively together, some of the most revolutionary new technologies and approaches spring from the synergy created only when idea people "rub shoulders," working in close proximity to one another. That is why so many new ideas and products came out of communities of innovation, such as Silicon Valley.

The same synergy is found where other workers and businesses from related industries cluster together in a region. Clusters leverage productivity by giving innovators more opportunity to interact, and by allowing firms to take advantage of common resources, such as a specialized workforce, technical institutes, or a common supplier base.

By competing, collaborating, and co-existing in ways that leverage one another's productivity, clustered firms fuel, relatively, more rapid economic growth in their region.

"[These clusters can] contribute time and money [that] supplement state resources in a time of tight budgets [and] serve as a reality check... [They also can give the community] a stake in the success of the program." -- Former Gov. Gary Locke, Washington

As a result, these clusters are invaluable for states. They provide good jobs, higher living standards, and the opportunity for further growth and innovation. The problem is that clusters usually do not form spontaneously. Policymakers must create the conditions for clusters to develop.

While there are many ways to foster industry clusters, states should begin by reorganizing economic development programs around clusters, rather than individual firms. For example, states should fund industry training programs through groups of firms with the same skill needs, rather than making grants to individual organizations.

Other learning programs, such as manufacturing extension, business finance, business assistance, and technology transfer, should also be reorganized around clusters. For example, states should provide small matching grants to help clusters form industry self-help associations. Increased funding for universities and community colleges could also be linked to how well they complement the training and research needs of local clusters.

Policies to develop industry clusters will vary according to the needs of states and their regions, but initiatives in Massachusetts and Rhode Island demonstrate what is working. One Massachusetts approach is to sponsor "turn-key industry networks," which are industry networks created and nurtured by major economic development agencies, and then spun off as independent associations. For example, by facilitating the Massachusetts Technology Collaborative, policymakers helped bring high-tech leaders together to brainstorm ways to leverage one another's productivity. The collaborative has since created the Massachusetts Medical Device Industry Council so producers of medical devices can avail themselves of the cluster effect.

Similarly, the Rhode Island Economic Policy Council, composed of representatives from government, business, labor, and higher education, works to develop new initiatives that seize economic opportunities and mobilize the efforts of public and private ventures to ensure the initiatives succeed. For example, it brought together leaders from the state's software companies to form the Rhode Island Technology Council. The Technology Council is an example of how a state facilitates cooperation among competing firms, encouraging industry leaders to discuss shared goals and determine how the state can best assist them.

Examples such as these demonstrate that clusters do not simply develop on their own. Policymakers have the means to create the conditions for clusters to thrive. While policymakers do not always have many options for attracting top-quality research institutions, and even fewer for improving the weather and other quality of life factors that help clusters develop, they nonetheless can effectively support clusters with state economic development programs.

Resources for Action

Rhode Island Economic Policy Council
www.ripolicy.org

Rhode Island Technology Council
www.eere.energy.gov/inventions/energytechnet/
resources/resultdetails/970

St. Louis Biobelt
www.biobelt.org

Massachusetts Medical Device Industry Council
www.massmedic.com

Morrison Institute for Public Policy
www.asu.edu/copp/morrison/

Collaborative Economics
www.coecon.com/

Massachusetts Technology Collaborative
www.mtpc.org

"Blueprint Profile: Governor Gary Locke," Blueprint, March 2002
www.dlc.org/ndol_ci.cfm?
contentid=250303&kaid=104&subid=116

Additional Reading

Robert D. Atkinson, "The 2002 State New Economy Index: Benchmarking Economic Transformation in the States," Progressive Policy Institute, June 2002
www.neweconomyindex.org/states/2002/

Robert D. Atkinson, "Building Skills for the New Economy: A Policymaker's Handbook," Progressive Policy Institute, April 2001
www.ppionline.org/ppi_ci.cfm?
contentid=3281&knlgAreaID=107&subsecid=175

Stuart A. Rosenfeld, "Backing Into Clusters: Retrofitting Public Policy," Regional Technology Strategies, Inc., 2001
http://www.rtsinc.org/publications/
Harvard4%20doc%20copy.pdf

Contacts

Beth Ashman Collins
Director of Research
Rhode Island Economic Policy Council
(401) 521-3120 ext. 107
beth@ripolicy.org

Nancy Welch
Associate Director
Morrison Institute for Public Policy
Arizona State University
(480) 965-4525
Nancy.Welch@asu.edu

Paul Weinstein
Chief Operating Officer
Progressive Policy Institute
600 Pennsylvania Ave, SE, Suite 400
Washington, DC 20003
(202) 547-0001
(202) 544-5014 (fax)
pweinstein@ppionline.org

Katie Campbell
Policy Analyst
Progressive Policy Institute
600 Pennsylvania Ave, SE, Suite 400
Washington, DC 20003
(202) 546-0007
(202) 544-5002 (fax)
kcampbell@ppionline.org