Job Creation on a Budget: How Regional Industry Clusters Can Add Jobs, Bolster Entrepreneurship, and Spark Innovation

The best way to create more jobs in a state is to grow them at home, rather than poach them from elsewhere: Some 95 percent of all job gains in a year in an average state come from the expansion of existing businesses or the birth of new establishments.

However, the usual recipe of tax credits, R&D, training programs, and physical infrastructure is not sufficient, by itself, to spur such “organic” job creation. States also need to cultivate their industry clusters—geographic concentrations of interconnected firms and supporting organizations. Properly designed, cluster strategies are a low-cost way to stimulate innovation, new-firm start-ups, and job creation by helping to link and align the many factors that influence firm and regional growth.

Additionally, thinking in terms of clusters gives governors a way to articulate a positive vision of economic prosperity, engage broad groups of stakeholders in driving recovery, boost the export intensity of the economy, and bring focus and discipline to myriad state investments and policies.

Specifically, states should:

  • Develop and use data and rigorous analysis to identify industry clusters, target policy, and track performance
  • Establish a modest grants program to address discrete gaps in cluster performance
  • Reorient existing economic development programs, policies, and initiatives to support clusters

These steps offer newly elected governors an attractive set of concepts as they seek to govern for growth at time of gridlock in Washington. Governors should leverage clusters (as many already have) to drive their economic competitiveness efforts at a challenging moment.