“Industry Clusters” Assigned to Spokane

The State of Washington has chosen an industrial policy known as “regional economic clustering” or “industry clustering” where the State government selects which industry clusters will operate within each of the 12 Workforce Development Areas defined in the State. The State further has enacted several state laws that require State agencies to prioritize their support for the State-selected industry clusters.

For Spokane, the focus will be

  • Health Care services,
  • Business Support Services,
  • Colleges and Universities,
  • Sheet Metal & Metal Buildings.

Or

  • Health Care,
  • Business Services,
  • Manufacturing,
  • Construction,
  • Transportation/Warehousing

Depending on who made the list. (Why the discrepancy? This inspires confidence in central planning…)

State law requires agencies and programs to support the identified clusters. The side effect is that all support for businesses outside the clusters is largely eliminated.

(This is a very long post – click on Read More to see the entire post)

While the policies do not prohibit establishing non-cluster firms here, such as high tech, the policies do remove most support for non-cluster focused areas. This means elimination of relevant economic development agencies and changes in college and university education programs to align programs with mandated clusters.  For example, to support the Spokane health care cluster, WSU-Spokane has been targeted as a health-science focused branch campus (per WSU press releases, WSU planning documents and expansion of health science programs here).

The high tech future pursued in recent years is not only gone, but is gone for good.  This decision by the State will have impacts on the regional economy for decades to come and creates a risk that Spokane will not thrive without 21st century businesses and innovation.

Washington now has a top-down, centrally planned economic future – and no longer has a free market. The clusters selected by the State were chosen by looking backwards in history – not by looking forward to what will be needed in the 21st century.

Background

1990: Harvard business school professor Michael Porter introduced the concept of an “industry cluster” in his 1990 book The Competitive Advantage of Nations. The basic idea is that synergies and network effects can develop between organizations within an economic region that give that region a comparative advantage. The key to success is the clustering of related industries, business, finance and government support. Silicon Valley is an oft-cited example of successful clustering.  Many regional and state economic development agencies adopted the clustering principle as the basis for policy actions during the late 1990s and early 2000s.

As best I can tell, no one – ever –had a discussion on potential problems with a centrally managed economy based on clustering.

2000: Dr. David Kazlow produces an economic report for the Mayor’s office that calls for an expanded role for high tech including software development, IT, bio-tech, electronics manufacturing, and medical instruments in the Spokane economy. . (See http://www.mrsc.org/Subjects/Econ/ed-planlist.aspx and look for “Spokane County”).

2000: The Director of Marketing for the Spokesman-Review, Shaun O.L. Higgins, in his annual state of the local economy presentation, notes that Spokane’s high tech sector has been in decline since the late 1990s – before the dot com collapse.  (See http://www.spokane.net/bus_tech/forecasts/econ/2000AdClubspeech.pdf)

2001: The Washington State Office of Trade and Economic Development commissions the UW School of Public Affairs to do a preliminary feasibility study of industry clustering in the State of Washington. The authors of the study propose that Spokane should focus on a health care “cluster” and the potential of an emerging bio-tech “cluster” that would leverage network effects of the health care community. (Available online at http://www.newjerseylifescience.com/econ_dev_reports/WA_Cluster_Report_2001.pdf). This is the study that launches the state on a multi-year plan to establish and nurture specific industry clusters in each economic region of the state.

2003: SIRTI, Intec, and the Spokane EDC commission the Morgan Leigh Group (a one person consulting firm) to write a 175-page “Developing the Innovation Economy” report. Building on work of the UW and a study written by Simon Tripp (Press release, http://wsunews.wsu.edu/pages/publications.asp?Action=Detail&PublicationID=8058), the region, broadly defined (Spokane-Pullman-Tri-Cities), is said to have the potential elements to support an emerging bioscience cluster.

The Morgan Leigh Group report suggests Spokane can only support 2 or 3 clusters and recommends

  • Health Care,
  • Technology manufacturing
  • Energy.

Each of these can be seen as forward-looking 21st century industries. However, since 2003, we have seen dramatic drop offs in technology manufacturing – Agilent, Telect, Itronix, Vivato – all gone or essentially gone. A subsequent 2008 State report (cited below) found technology manufacturing here to be in “sharp decline”. And later, the State decided that the Tri-Cities would be the location for the alternative energy cluster.

2005:

  • 2005 is the turning point year in the establishment of biotech in Spokane and the loss of high tech in Spokane.
  • The Legislature establishes the Life Sciences Discovery Fund (LSDF – URL http://www.lsdfa.org) a state-run bioscience venture capital. The money comes from tobacco lawsuit settlements.
  • The Legislature establishes the Health Sciences & Services Authority of Spokane as the first HS&SA in the state. The HS&SA can be funded by the LSDF money, local taxes, local bonds, grants and other sources. And its own debts can be paid for by any other local taxes that local politicians choose. The District can fund infrastructure improvements to support health science and health services. (As of 2010, in the midst of state budget problems, 40% of the LSDF funding is diverted to the State’s general fund instead.)
  • In 2005, SIRTI begins construction of a new 28,000 sq ft (scaled back from 39,000 sq ft original plans) Technology Center specifically designed to support the “wet lab” needs of bioscience. About half the square footage is “wet labs”. The facility opens in Nov 2006. . The purpose of the new building is to serve biotechnology businesses. See http://www.allbusiness.com/management-companies-enterprises/897753-1.html.
  • TECHNET is defunded and shut down at end of the year. 2005 (http://www.spokesman.com/stories/2005/oct/21/job-done-technet-plans-to-shut-down/)
  • INTEC is defunded and shut down at end of the year. Their web site nwetc.com today transfers to the Seattle-based WaTechCenter.org group.
  • EFGN – the Entrepreneurs Forum of the Great Northwest (Spokane based) scales back and is ended in early 2008.
  • Biotechnology Association of the Spokane Region (BASR) disappears (year not known but possibly 2003-2004 – may have been replaced by a state-wide bio-tech association.)
  • Spokane’s Center for Emerging Technology disappears (year not known).
  • LaunchPad INW – which ran entrepreneurial forums, brought in VCs to meet entrepreneurs, and so forth, lives on today as an online social network site.
  • Gonzaga University ends the last of its graduate degrees in engineering and no longer does any graduate training in any field of engineering or computer science.
  • WSU-Spokane ends its Masters programs in engineering and in 2009 seem to announce end to its Masters in Engineering and Technology Management saying that WSU-Spokane will focus on health sciences. (That statement seems to be incorrect – the WSU MS in ETM is still running – I personally know one student enrolled in the program – and it is a good program.)
  • Only remaining tech groups let after 2005’s tech agency decimation: SIRTI and the new Connect Northwest

2006: The Governor’s Policy office issues its recommendation to adopt clustering strategies in the State and the establishment of “Innovation Zones”.

“Two strategies are key to our state and regional activities.  First, the Legislature recently enacted legislation that included several efforts to promote industry clusters.  It confirmed the Department of Community, Trade and Economic Development’s list of industries that should receive special attention and resources due to their state-wide effect on the economy  …. In each industry, CTED will develop recruitment, retention, and expansion strategies in regional settings. The Legislature also created a program of competitive grants to promote regional activity around industry clusters.  The “Growing Washington Business” section of this strategic plan will describe a few examples of activity around industries and regions.”

(Page 16, The Next Washington Report, Sep, 2006, URL http://www.google.com/url?sa=t&source=web&ct=res&cd=2&url=http%3A%2F%2Fwww.governor.wa.gov%2Fnews%2FNext_WA_Discussion_Draft_with_cover_FINAL.pdf&ei=0X22Ss-dG4WIsgPwu9XjDg&rct=j&q=The+next+Washington+governor&usg=AFQjCNEYKj7wCsos0_RKyREHhJBIxVd0Qg&sig2=W2Qfja1Af0NIeWG9H-FsTw)

The U-District is earmarked as an Innovation Zone primarily for health care and bio-tech/bio-science (pursuant to WSU making WSU-Spokane’s primary focus “health science”). The building of a new Health Sciences building, the recently announced construction of a new $45 million Medical Sciences building, the establishment of new health science degree programs – and the simultaneous removal of all graduate engineering at WSU-Spokane and the removal of all graduate engineering programs at Gonzaga – is confirmation of this health Innovation Zone.

The Governor’s 2006 Next Washington report writes (as summarized in the 2009 SB 5048 discussion):

“The Next Washington calls for improving partnerships among workforce and economic development efforts at the state and regional levels.  Subsequently, Governor Gregoire called upon the Workforce Training and Education Coordinating Board (Workforce Board), the Department of Community, Trade, and Economic Development (CTED), and the Economic Development Commission (Commission) to develop a plan to support coordination at the state and regional levels, with special emphasis on key economic clusters.” (See Senate Bill Report SB 5048, February 3, 2009. This can be obtained at URL http://apps.leg.wa.gov/billinfo/)

2007:  The UW and Seattle University are commissioned by the Washington State Workforce Board to develop a statewide clustering strategy for each of the 12 Workforce Development Areas. This report is published in November of 2008. It is this report that identifies the Spokane market for health care services, sheet metal & metal fabrication, business support services and colleges and universities. . (See http://www.wtb.wa.gov/Documents/ClusterAnalysisReport.pdf, and look for WDA region 12.)

The State enacts HB 1091 requiring the WTECB to establish a process for selecting clusters and a process for implementing clusters in the state.

2008: Greater Spokane, Inc.’s economic development strategy virtually eliminates technology and high-tech from the plan (See URL http://www.greaterspokane.org/admin/lib/docs/pdf/ceds_2008.pdf). The only mention of technology is a brief note that SIRTI exists here to help foster technology startups.

SIRTI opens a new 28,000 square foot building specifically to serve the needs of bio-tech; about half of which is “wet lab” space for supporting bio-tech. The CEDS2008 document says SIRTI is “filled to capacity”. However, currently 7,000 of 12,000 sq ft at the main building are available for lease and about 35% of the new building is available for lease. The parking lots at both are about 70% empty during workdays.

Compared to early plans like 1997’s Focus 21 (no link) and Dr. David Kolzow’s 2000 report “A Strategic Plan for the Sustainable Development of the Spokane Area of Washington” produced for the Mayor’s Commission on Economic Development or Greater Spokane, Inc plans in the early 2000s. (See http://www.mrsc.org/Subjects/Econ/ed-planlist.aspx and look for “Spokane County”), “high tech” has been eliminated.

The Kolzow report called for

“SAEDC and the Chambers of Commerce should work together to create “clusters” or formal networks of technology driven businesses and industries similar to that of BASR and TechNet with the intent of stimulating interaction, research and development, joint marketing, trade show attendance, and procurement efficiencies.  This should be accomplished through the Center for Emerging Technologies.“

BASR, TechNet and the Center for Emerging Technologies mentioned above appear to no longer exist. TechNet was shut down at end of 2005. BASR may have merged into a statewide group. And CET vanished.

The Workforce Training and Education Coordinating Board issues an October 2008 report titled “A Statewide strategy for Industry Cluster Development”. (See http://www.wtb.wa.gov/Documents/SkillsForTheNextWashingtonpublished.PDF). This report discusses the industry cluster concept in depth, in response to 2007’s HB 1091 which required two state agencies to develop a process of selecting industry clusters across the state.

The report discusses the tools the State can use to “assist” specific clusters including about two dozen programs ranging from loans to economic empowerment zones and direct assistance to communities and businesses, plus deciding where to locate specific college programs. This document, more than any other, summarizes the cluster concept and explains the methods the State will use to enforce the clustering concept across the state.

In Nov 2008, the UW and Seattle University issue their report, prepared for the Washington State Workforce Board in Nov 2008, titled “Cluster Analysis for Washington State Workforce Development Areas” which spells out which industry clusters will operate in each WDA region in the state. (See http://www.wtb.wa.gov/Documents/ClusterAnalysisReport.pdf, and look for WDA region 12. Also see http://www.wtb.wa.gov/ClusterAnalysis.asp)

Early in 2008, WSU announces that its Spokane (Riverpoint) campus focus will be health sciences (see list which is the majority of programs here), design (such as architecture but even that is tied into health care 🙂 ) and education.

2009:

WSU-Spokane announces plans to build a $45 million medical sciences building (Spokane Journal of Business).

Movement ramps up on getting a medical school established in Spokane, presumably in the University District. The Presidents of both WSU and the UW make a joint announcement that a medical school will be established in Spokane, they just have no idea when that will occur.

A newer “Spokane Area Strategic Plan for Workforce Development 2009-2010” identifies “Five Vital Industry Clusters” (oddly, not the same as the Nov 2008 State report) for Spokane:

  • Manufacturing,
  • Health Care,
  • Construction,
  • Business Services and
  • Transportation/Warehousing.

(See http://www.wtb.wa.gov/Documents/SpokaneAreaStrategicPlanforWorkforceDevelopment2009-2011Final.pdf, page 8)

That the identified clusters do not agree between the Cluster Analysis report done by the UW and SU – and that done by the Workforce Training Board – ought to be a source of serious concern considering this is a centralized  plan for the State’s economy.

SB 5048 “Providing for coordination of workforce and economic development” is introduced in the Senate and passes unanimously. It is passed to the House where it is approved by the House Committee on Community, Economic Development & Trade (with amendments) then passed by the House Committee on Education Appropriations, and returned to the Senate.

This bill requires that

The Workforce Board must work with CTED and the Commission to ensure coordination among workforce training priorities, the state’s long-term economic development strategy, assistance to industry clusters, and entrepreneurial development.  In its comprehensive plan for workforce training and education, the Workforce Board must identify the strategic industry clusters targeted by the workforce development system. The Commission is added to a committee advising CTED on its industry clusters grant program.  In addition, eligible grant activities and grant priority are specified. The Commission is directed to include industry clusters and targeted strategic clusters in its biennial report.  The Commission must consult with the Workforce Board and include labor market and economic information provided by the Employment Security Department (ESD) in developing the list of clusters and strategic clusters.  The ESD must analyze labor market and economic data in order to identify industry clusters and strategic industry clusters.

Therefore, the state’s trade, education and economic development activities will be coordinated to support the selected industry clusters.  The Morgan Leigh Group report of 2003 wrote (page 68):

At some point, we will need to develop a specific cluster strategy wherein we concentrate on two, or possibly three, clusters. To be clear, we definitely support and encourage all innovation in the Inland Northwest. To this end, we encourage and promote the development of as many clusters as possible. However, there are resource constraints which oblige us to focus on a small number of clusters.

In other words, if your business does not fit within the identified clusters for your region, you are entirely on your own. The most critical aspect of this for innovation based businesses demanding highly skilled workers is the lack of appropriate academic support – unless you are in a designated cluster.

What this means for Spokane

  • The concept of industrial clustering may make sense. But no one appears to have discussed any possible problems with clustering.
  • Is the top-down centralized planning model better than a flexible ad hoc approach? Consider that the Spokane area’s regional economic plans from 1997 forward have changed dramatically during that time – and their predictions for the future have been almost universally wrong.
  • Elsewhere, clusters developed either organically or the government funded the cluster. For example, the LA basin remains a locus of aerospace. This originated in WW II and continued with huge government programs during the Cold War and the space program. Silicon Valley owes its start to government funding of electronics, semiconductors, communications and radar technologies during the Cold War. Can the State wave a magic wand and make clusters just happen? On the other hand, the State is pouring money into bio-tech in Spokane with new buildings at SIRTI, WSU-Spokane, UW med school and dental school students, new academic programs, the state run VC for life sciences, and other programs.
  • Do we want a centrally managed economy in Washington? The top-down centralized decision-making – and the specific implementations made by State and local governments to comply with the clustering requirement – mean that Spokane will not have a high tech innovation ecosystem for the 21st century.  With such a vast array of programs and resources aligned against high tech firms in Spokane, why would I want to start my high tech business here?  When I need highly skilled workers and a tech ecosystem, boasting that “Spokane is a nice place to raise a family” with low wages is a non-starter.
  • Illustration of the lack of a tech ecosystem: In the entire Spokane region, there is only one Masters level technology degree – a single MS in computer science at EWU that apparently had 9 students enrolled last year. There are no other technical or engineering Masters degrees or PhDs in the area. EWU also offers the only Masters in a science field, an MS in Biology. That’s it – just two technical or scientific graduate degrees in the region.
  • The Milkin Institute established a measure of a region’s capacity for “high tech” known as the “Tech Pole” rating.  In overall tech, Silicon Valley ranks the highest at 100.0 (Seattle is 47) and Spokane ranks 0.5. As we dig down, in the area of Software, Seattle ranks 100.0 and Spokane ranks 0.01. In electronics, Spokane ranks 0.04. (See http://www.milkeninstitute.org/nahightech/nahightech.taf?rankyear=2007&&type=metro&ID=1325)
  • If globalization, trade and other economic factors change, the state will have adopted an industrial policy that is embedded in concrete. It will take half a dozen years to re-direct the state’s top-down economic policies to accommodate potential changes. And during that time, regional economies will suffer.
  • Outside of health care, Spokane will feature clusters that have low to modest wages compared to the clusters identified for other communities. For example, software and aerospace feature prominently in King County – and both pay substantially higher wages than the clusters in Spokane. Spokane’s comparative advantage is primarily that of poverty.
  • Ambitious people and young people will move to King County. All of the incentives favor high paying job sectors in King County. This will negatively impact outlying areas like Spokane – and make traffic and other problems of King County even worse.
  • Spokane area wealth will come primarily from health care – and retirees who arrive here from elsewhere. For example, those (previously) selling homes in California and Seattle bring wealth and income derived from elsewhere to Spokane – and customers for the health care sector.
  • Biotech is an “emerging” sector.  The resources previously provided to support high tech have now been re-directed to bio-tech. There is as of yet no indication that the same strategy will be successful for bio-tech either. Critical elements to make this a globally competitive bio-tech cluster are not yet in place. WSU is moving more health science programs to WSU-Spokane; EWU has just a single MS in biology degree in a field that generally requires graduate education. There are no PhD research programs here. The creative and dynamic atmosphere fostered by doctoral research programs is non-existent. A growing medical student population may help. The need to attract world-class researchers and workers will be challenging. According to other research, the first thing that employers look for is availability of skilled labor in an area. The highest priority item that workers look for is a rich job market – in case their job does not work out. At this time, we have neither.
  • Without true high technology and state of the art technology business sectors will Spokane really have a 21st century economy or will it fall behind? After proclaiming in endless economic plans that Spokane must have a diversified economy, including high tech, we are now putting all of our 21st century eggs into the health care services and biotech basket. Spokane risks being left behind as other communities charge ahead this century.
  • Left unanswered is “Why did Spokane lose its tech sector?” What caused the decline? I can only guess that it came down to location, location and location. Spokane is too far from the centers of tech innovation and never established a sufficient high tech innovation ecosystem for businesses here to be able to compete on a national or world-class level.
  • Does Spokane really have a workable 21st century economic plan now?

6 Responses to “Industry Clusters” Assigned to Spokane

  1. Pingback: Spokane Ranks Low for high tech business « Spokane Area Economic Data

  2. Let me know if you’d like to come for a campus tour.

    @BarbChamberlain
    Director of Communications and Public Affairs
    Washington State University Spokane
    @WSUSpokane
    http://www.spokane.wsu.edu

  3. Pingback: College Degrees Awarded by Spokane Area Colleges and Universities « Spokane Area Economic Data

  4. Pingback: Incoherent Cluster Strategy for Spokane « Spokane Economic And Demographic Data

  5. Pingback: Yet another set of centrally planned clusters for Spokane! « Spokane Economic And Demographic Data

  6. Pingback: Where future jobs will be … in Spokane? « Spokane Economic And Demographic Data

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.