Clusters, Innovation and Jobs States and Innovation: Setting the Stage for Job Creation

Transcription

1 Clusters, Innovation and Jobs States and Innovation: Setting the Stage for Job Creation National Governors Association Professor Scott Stern MIT Sloan School and NBER

2 Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 2

3 The Economic Development Challenge for US States Sluggish Job Market Weak Public Finances What CAN States do? What SHOULD States do? 3

4 70,000 65,000 Long Term State Prosperity Performance 1999 to 2009 High but declining versus U.S. U.S. GDP per Capita Annual Growth Rate: 0.86% Highly productive and productivity rising versus U.S. Gross Domestic Product per Capita, ,000 55,000 50,000 45,000 40,000 35,000 30,000 U.S. GDP per Capita: $42,031 North Carolina Illinois Nevada Texas Ohio Georgia Tennessee Michigan Kentucky Washington Delaware Alaska Arizona Colorado Louisiana Wisconsin Indiana Missouri Utah South Carolina New Mexico New Jersey Florida Maine Alabama Arkansas West Virginia Connecticut Massachusetts New York California Virginia Hawaii Minnesota Maryland Nebraska Mississippi Montana Idaho Iowa NH Rhode Island Oregon Kansas Pennsylvania Oklahoma Vermont Wyoming South Dakota North Dakota Low and declining versus U.S. Low but rising versus U.S. 25, % -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Gross Domestic Product per Capita Growth Rate, 1999 to 2009 Notes: Real GDP figures in 2005 chained US dollars from the Bureau of Economic Analysis. Growth rate is calculated as compound annual growth rate. D.C. excluded 4

5 5

6 Within the US, states differ by a factor of 4-5 in terms of patents per capita 6

7 With even more striking variation at the regional level 7

8 Innovation and the Jobs Challenge GM Genentech GM Versus Genentech, 2007 Employment 8

9 What role do clusters play in regional economic competitiveness and job creation? Do clusters work as a driver of economic development? What policies and approaches can state governments use to facilitate cluster-led innovation-oriented economic growth and job creation? 9

10 Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 10

11 The Foundations of Competitiveness Microeconomic Competitiveness Quality of the National Business Environment State of Cluster Development Sophistication of Company Ops and Strategy Macroeconomic Competitiveness Social Infrastructure and Political Institutions Macroeconomic Policies Natural Endowments 11

12 What is a Cluster? A geographic concentration of related companies and associated institutions in a particular field, linked by commonalities and complementarities An end product industry or industries Downstream or channel industries Specialized suppliers Providers of specialized services Related industries (those with important shared activities, labor, technologies, channels, customer relationships) Supporting Institutions: standard setting, education and training, research, trade associations 12

13 Innovation-Oriented Industrial Clusters Climate for Innovation- Based Local Rivalry Factor (Input) Conditions A local context that encourages investment in innovation-related activity Open and vigorous local competition Demand Conditions High quality human resources, especially scientific, technical, and managerial personnel Strong basic research infrastructure An ample supply of risk capital High quality information infrastructure Clusters of Related and Supporting Industries Sophisticated and demanding local customers Customer needs that anticipate those elsewhere A critical mass of capable local suppliers critical mass of capable local suppliers Clusters of related and supporting industries Presence of Clusters instead of industries and institutions to harness linkages Economic development is a process of successive upgrading, in which the business environment evolves to support and encourage increasingly sophisticated 13 and productive ways of competing

14 Clusters are particularly powerful drivers of economic performance when they leverage regional innovative and entrepreneurial capacity These three elements combined are the foundations for regional innovation-based entrepreneurship. Regional Cluster Strength They are enhanced by the strength and number of connections among them. Regional Innovation Capacity Regional Entrepreneurship Capacity 14

15 The Australian Wine Cluster Locations Western Australia Northern Territory Queensland South Australia New South Wales Victoria Note: Colored areas indicate wine growing regions Source: Australian Wine & Brandy Corporation 15 Tasmania

16 The Emergence of the Australian Wine Industry is Rooted in the Evolution of Australian Competitive Advantage Mining and Natural Resources Gold Iron / Aluminum Bauxite Logistics / Trade Travel and Tourism Abundant Productive Land Produce Grains Wool Beef Wine Information Technology Ag Research Centers Education and Knowledge Creation Medical Devices Bioscience Research Centers Biotech / Pharmaceuticals

17 The Australian Wine Cluster Recently founded Institutions for Collaboration Winemakers Federation of Australia Established in 1990 Focus: Public policy representation of companies in the wine cluster Funding: Member companies Cooperative Centre for Viticulture Established in 1991 Focus: Coordination of research and education policy in viticulture Funding: other cluster organizations Australian Wine Export Council Established in 1992 Focus: Wine export promotion through international offices in London and San Francisco Funding: Government; cluster organizations Grape and Wine R&D Corporation Established in 1991 as statutory body Focus: Funding of research and development activities Funding: Government; statutory levy Wine Industry Information Service Established in 1998 Focus: Information collection, organization, and dissemination Funding: Cluster organizations Wine Industry National Education and Training Council Established in 1995 Focus: Coordination, integration, and standard maintenance for vocational training and education Funding: Government; other cluster organizations Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster Supplement, Harvard Business School Case Study,

18 The Australian Wine Cluster Trade Performance Australian Wine Exports in million US Dollars Australian Wine World Export Market Share $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $ % 7% 6% 5% 4% 3% 2% 1% 0% Value Market Share Source: UN Trade Statistics 18

19 Wine Industry Healty Rivalry Based on Quality and Execution Natural Resources & Deployment of Best Global Technology Increasingly Sophist. Local Market Emerging Intl. Leaderhip 19

20 Health and Beauty Products Clusters and Innovation Massachusetts, Life Sciences Teaching and Specialized Hospitals Cluster Organizations MassMedic, MassBio, others Surgical Instruments and Suppliers Medical Equipment Dental Instruments and Suppliers Biological Products Biopharmaceutical Products Specialized Business Services Banking, Accounting, Legal Ophthalmic Goods Specialized Risk Capital VC Firms, Angel Networks Diagnostic Substances Containers Research Organizations Specialized Research Service Providers Laboratory, Clinical Testing Analytical Instruments Educational Institutions Harvard University, MIT, Tufts University, Boston University, UMass Saudi Arabina GCF 2011 Version 115 Sun Copyright 2011 Professor Michael E. Porter

21 Bob Langer has published more than 1100 articles and been granted more than 760 patents Saudi Arabina GCF 2011 Version 115 Sun Copyright 2011 Professor Michael E. Porter

22 Cluster Research, Publications and Projects Recent History Cluster and Economic Policy White Paper Competitiveness in Rural Regions European Cluster Memorandum Clusters and Entrepreneurship The Economic Performance of Regions EU-10 Cluster Mapping Access to Census Center for Economic Studies Clusters, Convergence and Economic Performance Clusters of Innovation Initiative U.S. Cluster Mapping Project Canadian Cluster Data International Cluster Competitiveness Profiles European Cluster Observatory European Cluster Policy Group European Cluster Observatory v2.0 Launch of the EDA-sponsored National Cluster Mapping Project 22

23 Cluster Categories Jewelry & Precious Metals Footwear Financial Services Processed Food Business Services Apparel Leather & Related Products Fishing & Fishing Products Agricultural Products Distribution Services Publishing & Printing Oil & Gas Transportation & Logistics Education & Knowledge Creation Chemical Products Plastics Hospitality & Tourism Information Tech. Medical Devices Entertainment Aerospace Vehicles & Defense Analytical Instruments Tobacco Biopharmaceuticals Communications Equipment Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. 23 Lightning & Electrical Equipment Prefabricated Enclosures Building Fixtures, Equipment & Services Power Generation Motor Driven Products Furniture Heavy Construction Services Aerospace Engines Textiles Heavy Machinery Construction Materials Forest Products Production Technology Mining & Metal Manufacturing Sporting & Recreation Goods Automotive

24 BROAD CLUSTER DEFINITION NARROW CLUSTER DEFINITION Automotive Cluster SUBCLUSTERS (16) SIC LABEL Motor Vehicles 3711 Motor vehicles and car bodies Automotive Parts 2396 Automotive and apparel trimmings 3230 Products of purchased glass 3592 Carburetors, pistons, rings, valves 3714 Motor vehicle parts and accessories 3824 Fluid meters and counting devices Automotive Components 3052 Rubber and plastics hose and belting 3061 Mechanical rubber goods Forgings and Stampings 3322 Malleable iron foundries 3465 Automotive stampings Flat Glass 3210 Flat glass Production Equipment 3544 Special dies, tools, jigs and fixtures 3549 Metalworking machinery, n.e.c. Small Vehicles and Trailers 3799 Transportation equipment, n.e.c. Marine, Tank & Stationary Engines 3519 Internal combustion engines, n.e.c. Related Parts 3364 Nonferrous die-casting, except aluminum 3452 Bolts, nuts, rivets, and washers 3493 Steel springs, except wire 3495 Wire springs 3562 Ball and roller bearings 3566 Speed changers, drives, and gears 3641 Electric lamps Motors and Generators 3621 Motors and generators Related Vehicles 3795 Tanks and tank components Metal Processing 3316 Cold finishing of steel shapes 3398 Metal heat treating Machine Tools 3541 Machine tools, metal cutting types 3542 Machine tools, metal forming types 3545 Machine tool accessories Related Process Machinery 3543 Industrial patterns 3548 Welding apparatus Industrial Trucks and Tractors 3537 Industrial trucks and tractors Die-castings 3363 Aluminum die-castings 24

25 The Composition of Regional Economies United States, 2008 Traded Natural Resource-Based Local Share of Employment Employment Growth Rate, 1998 to % 0.3% 0.9% 0.6% 71.7% 1.6% Average Wage Relative Wage Wage Growth Rate, 1998 to 2007 $57, % 3.9% $40, % 2.9% $36, % 3.3% Relative Productivity Patents per 10,000 Employees Number of SIC Industries Number of NAICS Industries Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 25

26 Geographic Profile of Cluster Employment Leading Regions by Life Sciences Subclusters Minneapolis, St. Paul, MN Surgical Instruments 6% Medical Equipment 8% WA ME ND MT OR MN SD 14% WI MI WY PA NE Chicago, IL CO IL Diagnostic Substances 42% UT KS Los Angeles, CA Health/Beauty Products 11% AZ IN Middlesex Somerset, NJ WV Health/Beauty Products 9% OH MO OK AR LA TX VA KY TN NM VT NH MA Newark, NJ RI Pharmaceutical Products 12% CT IA NV CA NY MI ID Oakland, CA Biological Products Boston, MA Research Organizations 7% Medical Equipment 12% Philadelphia, PA NC SC Pharmaceutical Products 6% MS AL GA FL Washington, D.C. Research Organizations 10% Research Production Devices and Substances Note: All 318 Metropolitan Areas are shown as shaded; includes subclusters in which the MA has employment rank 1 or 2 nationally, 1999 data Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School 26 Copyright 2010 Michael E. Porter

27 6.0% Composition of the Wisconsin Economy Specialization by Traded Cluster, 1998 to 2008 Forest Products (12.4%) Wisconsin s national employment share, % 4.0% 3.0% 2.0% 1.0% 0.0% Heavy Motor Driven Products Machinery Footwear (-1.7%) Sporting, Production Technology Processed Food Recreational and Children's Goods Agricultura Automotive Power Generation and Transmission Distribution Services Building Fixtures, Equipment and Services Heavy Construction Services Financial Services Publishing and Printing Education and Knowledge Creation Busines s Overall change in the Wisconsin Services Share of US Traded Employment: -0.08% l Products Analytical Services Hospitality and Tourism Construction Materials Textiles Metal Manufacturing Lighting and Electrical Equipment Plastics Prefabricated Enclosures Entertainment Apparel Furniture Chemical Products Leather and Related Products -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Change in Wisconsin share of National Employment, 1998 to 2008 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. NGA 2011 Wisconsin Rich Bryden 27 Medical Devices Wisconsin Overall Share of US Traded Employment: 2.07% Information Technology Transportation and Logistics Communications Equipment Fishing and Fishing Products Biopharmaceuticals Employment Added Jobs Lost Jobs Employees 15,000 = Copyright 2011 Professor Michael E. Porter

28 Clusters and Jobs Industries within stronger clusters are associated with higher levels of job growth from the early 1990s to the mid-2000s Focused on growth in start-up employment, and aggregates up to a relationship between the presence of stronger clusters and higher overall job growth INDUSTRY SPECIALIZATION Low High CLUSTER SPECIALIZATION ir 1990 Relative Strength of Regional Clusters (presence of related industries) Low +13% 0% High +20% 2% Note: Region (EA) and Industry (4-digit SIC). Cluster specialization variable is measured by Location Quotient. High means above the median of the variables for each industry-year 28

29 Clusters and New Business Formation CLUSTER The stronger the cluster, the higher the survial rate of new businesses Survial Rates of New Businesses (+) New Industries (+) New Business Formation (+) The stronger the cluster, the more dynamic is the process of new business formation The stronger the cluster, the more likely new industries within the cluster are to emerge The stronger the cluster, the higher the job growth in new businesses Job Growth In New Businesses (+) Source: Porter, The Economic Performance of Regions, Regional Studies, 2003; Delgado/Porter/Stern, Clusters and Entrepreneurship, Journal of Economic Geography, 2010; Delgado/bPorter/Stern, Clusters, Convergence, and Economic Performance, mimeo.,

30 Clusters and Regional Prosperity: The New Evidence Cluster Strength is a Driver of Regional Job Growth, Wages, Patenting, New Business Formation, and Success of Startups Specialization in strong clusters Breadth of position within each cluster Positions in related clusters Presence of a region s clusters in neighboring regions Not significant Positions in high-tech versus other clusters Source: Porter, The Economic Performance of Regions, Regional Studies, 2003; Delgado/Porter/Stern, Clusters and Entrepreneurship, Journal of Economic Geography, 2010; Delgado/Porter/Stern, Clusters, Convergence, and Economic Performance, mimeo.,

31 New Momentum in Federal Policy White House Interagency working group on regional innovation clusters Economic Development Agency Small Business Administration Regional Innovation Clusters framework and launch of pilot program with DOE (E-RIC) I6 Challenge with NIH and NSF Regional Innovation Clusters program Advanced Defense Technology program with DOD Department of Agriculture National Science Foundation Rural Innovation Initiative Innovation Ecosystems Many of these initiatives cut-across individual agencies or departments 31

32 Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 32

33 The Composition of Regional Economies The Old View: Sectors and Industries The New View: Clusters Manufacturing vs. services High tech vs. low tech Clusters of related industries All clusters are good One path to prosperity Critical is what you do Many paths to prosperity Critical is how you do what you do 33 Copyright 2010 Michael E. Porter

34 The Economic Case for Cluster Policy Create Platforms for Joint Action Path dependency Organize Public Policy around Clusters Coordination failures Local Externalities Information asymmetries Carlyle Group 34 Copyright 2008 Professor Michael E. Porter

35 Organize Public Policy around Clusters Business Attraction Education and Workforce Training Export Promotion Market Information and Disclosure Clusters Science and Technology Infrastructure (e.g., centers, university departments, technology transfer) Setting standards Specialized Physical Environmental Stewardship Infrastructure Natural Resource Protection Clusters provide a framework for organizing the implementation of many public policies and public investments directed at economic development 35 Copyright 2010 Michael E. Porter

36 What are Cluster Initiatives? Cluster initiatives are collaborative activities by a group of companies, public sector entities, and other related institutions with the objective to improve the competitiveness of a group of interlinked economic activities in a specific geographic region Upgrading of company operations and strategies across a group of companies Upgrading of clusterspecific business environment conditions Strengthening of networks to enhance spill-overs and other economic benefits of clusters 36 Copyright 2010 Michael E. Porter

37 What is Different about Cluster-Based Economic Policy? Cluster vs. Narrow Industries Public-Private Collaboration Focus on upgrading productivity Regional Perspective Demanddriven Policy Priorities Build on Regional Strengths 37 Copyright 2010 Michael E. Porter

38 Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 38 Copyright 2010 Michael E. Porter

39 Clusters and Economic Strategy Positioning Identifies, communicates, and strengthens the specific value proposition of the location Business Environment Cluster Portfolio Improves the economic platform for all clusters and companies Accelerates growth in those fields where the country has some strengths New clusters emerge from established clusters 39 Copyright 2010 Michael E. Porter

40 The Role of Government in Cluster Initiatives Government should Government may Government should not Support all existing and emerging clusters Participate Enable data collection and dissemination at the cluster level Be ready to implement recommendations Initiate/ Convene Co-Finance Pick favored clusters Pick favored companies Subsidize or distort competition Define cluster action priorities 40 Copyright 2010 Michael E. Porter

41 Applying Cluster Mapping Data Part of the assessment of a regional economy Composition of the regional economy Cross-regional benchmarking of strong clusters Matching of regional clusters with regional business environment strengths Identifying the nature of comparative advantage of a region or state Identification of potential for new clusters Emerging clusters Opportunities at the boundaries/intersections of clusters Part of the regional strategy development Clusters as signals of the regional value proposition Clusters as bridges to neighbors and other regions Impact assessment and feed-back to policies 41 Copyright 2010 Michael E. Porter

42 EDA-Sponsored Cluster Mapping Project 42 Copyright 2010 Michael E. Porter

43 Clusters and Regional Economic Development Strategy Clusters are a forum to identify fundamental challenges in the regional business environment Current economic and fiscal challenges have placed pressure on regional strategies from the boom years. Rather than a extra during good times, coherent regional strategy is critical for overcoming current challenges to our fiscal health and economic growth. Clusters provide new roles for government, companies, and other institutions in economic development Regions must leverage and expand the scope of the innovation system that supports regional competitiveness in advanced economies. The strategy for long-term growth relies less on bidding wars and high-profile investments than on creating conditions for firm development and cluster formation. Clusters are critical engines in the economic structure of state and regional economies 43