July 5, 2011
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Well into what is technically an economic recovery, job creation is still lagging—and still the hot topic on everyone’s mind. Politicians remind us that small business is the engine of job creation, but cautious small business owners still aren’t hiring. So what can stimulate job growth and the economy?
State and federal government are hoping industry clusters are one such tool. The industry cluster concept, which USA Today recently reported on, develops “clusters” of companies in growth industries, like high tech, biomed, clean energy, and aerospace. Similar to the industry clusters that arose organically in places like Silicon Valley, the concept aims to bring together entrepreneurs and businesses, universities and researchers, and suppliers and training programs to work together in one region.
The theory behind the cluster concept is that manufacturers and suppliers benefit by being close so they can work together on product design. Companies benefit from being near universities, where they can gain access to new technologies and participate in technology transfer. And, of course, as more workers flock to a cluster to get jobs, more companies come too, attracted by the availability of skilled talent.
States promoting clusters are hoping to create new jobs and keep businesses in their regions. So far, cluster development is being used mostly in industries that involve some type of manufacturing. With the U.S. losing more than 2 million manufacturing jobs in the recent recession alone, states and cities are eager to keep remaining businesses from turning offshore to find workers.
Now, USA Today reports, the federal government is also getting involved. The president’s 2012 budget has proposed identifying clusters to receive financial incentives, and another program will tap into 16 federal agencies to help existing clusters grow.
Clusters are generally managed via nonprofit organizations that receive both state and federal funding, then help businesses in the cluster get financing (including venture capital and government funds) and match them with partners or suppliers.
Are clusters working? Proponents point to the success of organic clusters like Silicon Valley as a model, as well as successful cluster programs that have been encouraged by government. USA Today reports that a $2.3 billion state program in Ohio has injected $235 million into biomedical research and biomed startups since 2002. The number of biomed companies in the region has more than doubled in the last 10 years.
Opponents say the government is less likely to “pick winners” and that involving government in cluster creation leads to unnecessary bureaucracy. But while you might think industry clusters benefit primarily big companies, small companies are growing as well. One Ohio company cited in the article, CardioInsight, has launched a new invention and hopes to expand from 20 to 40 employees in the next few years. That’s job creation—and it’s not coming from big business.
What do you think about the concept of industry clusters?
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Anita Campbell 3 months ago
Kevin, I am in no way a big proponent of government programs. Many are wasteful -- the free market works well most of the time if it's just left alone. But I do think that supporting what the free market has already signaled is working, can help in select situations. I am from Ohio, and would simply point out that long before government got involved, Ohio has been known for being a biomedical leader. The presence of such world-renowned institutions like the Cleveland Clinic just naturally drove the growth of related medical companies in the area such as Invacare. With that cluster already there, programs have merely helped spur some startups in what is already a thriving cluster.Just my two cents....- Anita