The Avenue

Job Creation on a Budget: Regional Cluster Strategies

Mark Muro

As a new class of governors mulls how to reignite job creation, it’s safe to bet that too many of them will go in for firm “recruitment.” Eager to deliver results fast, these well-intentioned executives will seek to out-compete rival states in an expensive race to poach companies and jobs from elsewhere. Their hope: secure some splashy ribbon cuttings and early announcements of job-creation.

And yet, smart governors may want to spare themselves the expense. As it happens, growing jobs “organically” from among existing businesses and local entrepreneurship is by far a surer bet for lasting job creation than firm “chasing,” and, what is more, state “cluster” strategies furnish a powerful, cost-effective framework for action. Wise governors should take a look.

In a new paper, states, we argue, are frequently caught between fealty to a discredited grail and, on the other hand, poor execution on a better idea.Too often, state economic policies have placed external business recruitment at the center of their efforts, not realizing that such “smokestack” or headquarters chasing is typically wasteful at a time when resources are scarce. The hard fact, according to the California scholar Jed Kolko: No more than 2 percent of annual state job gains can be attributed to business relocations nationally while more than 95 percent comes from the expansion of existing businesses (nearly 42 percent) and the birth of new establishments (56 percent).At the same time, when states do look inward to foster “organic” growth based on existing strengths, they have not always recognized the centrality of their regional economies. Instead, state competitiveness efforts have tended to focus too narrowly on what economist Greg Tassey calls the “black box” model of development, which assumes that jobs will magically appear in the presence of the right inputs to growth, usually defined as tax credits, R&D, training programs, and physical infrastructure. The problem is, states must also attend to how those inputs are utilized and combined through the intense, day-to-day dynamics that drive regional economies.

Which is where regional industry clusters—synergistic regional concentrations of firms and related networks and actors in particular fields—come in.

Clusters—whether in cleantech in Colorado or biofuels in Tennessee—represent a powerful source of growth, new-firm starts, and quality jobs at a moment of economic uncertainty, as Bruce Katz and I argued in a recent paper. Moreover, many states have already recognized that a cluster program that builds up existing regional assets and collaborative dynamics can be a grounded, practical, and cost-effective alternative to more conventional economic development efforts. And yet, to the extent that states pursue cluster-based approaches, their efforts are still typically contained within the broader rubrics of state-led economic development and often suffer from a variety of shortcomings: They are too broad or vague; they are poorly researched; they are overly-top-down; or perhaps still focused on business attraction.

Hence our effort intended to help governors execute on the new brand of bottom-up, back-to-basics economic development. We suggest states largely reject traditional “smokestack chasing” and introduce or improve existing cluster strategies as a way to catalyze more intense regional entrepreneurship and job creation in emerging industries and existing firms. Specifically, we suggest that states should:

  • Use data and analysis to identify valuable clusters, inform initiatives, and track performance
  • Target small grants to address discrete gaps in cluster performance and so stimulate cluster activity
  • Employ cluster data and paradigms to better inform, link, leverage, and align existing programs and offerings across state agencies in support of the cluster strategy

Similarly, growth-minded governors should embrace the cluster paradigm as the organizing principle for a new approach to economic development. Such a push will take a pass on expensive bidding wars over single firms. More strategically, the new focus will work to support the job-creating interactions of existing groups of firms and entrepreneurs—and save money along the way as it maximizes the impact of existing programs by swinging their focus behind the needs of the state’s clusters.