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Clusters COMPETE

For years now we and many others (ranging from the Harvard strategy guru Michael Porter, the Council on Competitiveness, and innovation scholar Rob Atkinson to the National Governor’s Association, the Rural Policy Institute, Stu Rosenfeld, the National Academies, and the Center for American Progress) have been urging that greater attention be paid to the crucial role that regional industry or “innovation” clusters can play in enhancing economic performance.

The U.S., we have pointed out, lags other nations in fostering these distributed, “bottom-up” systems of business development, innovation, and talent matching. The time has come, we have kept saying, for America to make regional industry networks a defining aspect of the nation’s efforts to catalyze the next era of high-quality job creation and growth.

Which is why it is so extremely welcome that the newly released draft language for the reauthorization of America COMPETES Act—America’s flagship vehicle for boosting economic growth through innovation--includes a serious new title aimed at promoting growth through the establishment of a competitive regional innovation cluster grant program. Congress has at last begun to respond.

This is a big deal. At Brookings, we are gratified because the proposed program—which will be reviewed in the bill’s markup Wednesday by the House Science and Technology Committee—embodies at least in outline the architecture for a new program we proposed two years ago. Far more important, though, is the practical value to the nation of something like the new initiative, and the broader significance of its inclusion in America COMPETES as sponsored by Rep. Bart Gordon, D-TN.

As I wrote last week, one of the great flaws of U.S. innovation policy today is that it pays too little attention to the practical commercialization of ideas and is still based on what the economist Greg Tassey calls the “black box model” of growth that assumes desirable goods and services magically appear as a result of the combination of R&D spending with the traditional inputs of capital and labor. This “magical” or linear model is misleading because it assumes that basic research gets easily or almost automatically translated into commercial activity. But commercialization doesn’t happen automatically. In fact, the real-life commercialization process is pursued by small and large firms, trade associations, universities, community colleges, investors, and entrepreneurs in a universe jam-packed with complications, including information breakdowns, institutional inertia, coordination and communication problems, and poorly aligned incentives. Add to that the disaggregation of the American development system, through the globalization of the supply chain, and it’s clear that U.S. growth and innovation activities are diffusing rather than cohering, drifting rather concentrating.

All of which suggests the need for the industry cluster program now embedded in America COMPETES. Clusters—geographic concentrations of interconnected firms and supporting organizations—are one important way that networks of companies, suppliers, and related institutions put the pieces of a fragmented development system back together. Through clustering, firms and other enterprises seek to cooperate or share resources—whether technology, workers, or suppliers--on certain matters even as they compete nationally and globally. Through such clustering firms benefit from valuable local knowledge, specialized local labor forces, technology diffusion, or strategic partners. Hence the need for efforts to foster these vital networks. However, due to lack of trust, talent, and resources, many clusters are less competitive than they could be. Consequently, it often falls to government to promote local initiatives that enhance intracluster collaboration.

And so America COMPETES now offers a program of this kind—one not unlike a number of other initiatives being proposed by the Obama administration in the FY 2011 budget. According to the current text of Sec. 503 of H.R. 5116, the draft legislation calls for the establishment in the Department of Commerce of a two-part federal initiative that would:

  • Establish a regional innovation cluster (RIC) grants program to “encourage and support the development of regional innovation strategies”
  • Create a research and information program on regional innovation strategies, to gather and disseminate best practices in regional innovation strategies and collect and make available data on U.S. clusters

Through these provisions, the federal government will make available competitive grants and information aimed at stimulating the collaborative interactions of firms and other institutions in regions to produce more commercial innovation and higher wage employment. Under the grant program, specifically, the government will award competitive grants to the best, bottom-up proposals for advancing cluster activities—whether it be for planning activities, technical assistance, or market analysis—in individual regions whether by governments, non-profits, public-private partnerships, and other entities.

Now to be sure, the new draft language isn’t perfect. Because the bill would have the Commerce Department fund one-off cluster initiatives rather than regional programs that promote cluster initiatives more generally, it increases the likelihood of misfires, hinders regional flexibility and capacity to respond to economic change, and could reduce—rather than increase—cooperation among regional actors. (We will try to write more on this soon.)

And yet, for all that, the arrival of region-talk and clusters in America COMPETES really does mark watershed in U.S. innovation policy. With the addition of clusters to COMPETES, after all, Rep. Gordon and others have begun the hard work of updating the last two decade’s too-simple account of innovation and competitiveness. No longer is it believable that the nation possesses one single placeless economy and that commercial breakthroughs, jobs, and prosperity will result magically from a simple recipe of spending on R+D and human capital investments. And so it is extremely welcome that Congress has begun to recognize that the American economy is regional; that regional industry networks and clusters are a defining aspect of its organization; and that attending more astutely to the details of how innovations are commercialized in U.S. places is a necessary part of sound economic steerage. At last the nation’s economic leaders may be waking up.