History of Spokane Economic Plans – Part 5 – Clusters

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Back in the early 1990s, Harvard Business School professor Michael Porter proposed that regions could strive to bring clusters of related industries together to create a synergy that would improve regional competitiveness.

Government economic planners seized upon this idea and began to make “industry clusters” a centerpiece of their planning.

Here in Washington, they commissioned clustering reports from the University of Washington and later also Seattle University to help the state identify which clusters should be where.

This meant identifying existing clusters and then establishing state laws and policies to grow those regional clusters. For Spokane, for example, they identified clusters such as “regional health care delivery” and “warehousing and distribution” (trucking).

The State legislature passed laws to generally enforce these clustering efforts by requiring about six different agencies to conform to the identified clusters. For example, through the state’s Higher Education Coordinating Board, public colleges and universities were directed to emphasize programs that support the identified clusters and remove support for non-cluster programs.

If this looks a lot like central economic planning, it is. It is not, as they argue, “bottom up” planning merely because they chose existing clusters. In effect, the State is pouring concrete over the existing cluster structures which will then set and leave these communities largely stuck with what they have.  Rural areas, sometimes designated for industries like mining or wood products, are largely now stuck with those forever.

The State can not prohibit people from starting a non-cluster business but there will not be the same support available to those in the chosen fields as explained on page 68 of the Innovation Economy.

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, entrepreneurs and workers that wish to pursue a non-selected cluster are mostly on their own. Which may mean few or no local workers trained at local colleges and universities, for example. If you are not in the State selected cluster for this region, you would be best off moving elsewhere.

What should the clusters be in Spokane?

In a central planning model it depends on who made the list and when. Back in 2001, the UW suggested focusing on health care delivery and the potential of an emerging bio-tech “cluster” that would leverage network effects of the health care community.

In 2000, Dr. Kazlow (see Part 4) proposed the following set of “target industries” (we didn’t call them “clusters” then):

• Biotech and biomedical industries
• Value ­added agribusiness
• Information­ technology based activity, including software development and Internet ­related firms
• Higher wage call centers such as technology support and customer service
• Higher wage back offices and shared services
• Aerospace parts
• Electronic component  and electronic equipment manufacturing
• Business services, such as marketing, advertising, management consulting
• Instruments and related products, including medical

By 2003, a suggested list was

• Health Care,
• Technology manufacturing
• Energy

By 2005, the health care and bio-tech theme was growing strong and the clustering push was kicking in:

• SIRTI began building a new 28,000 st ft “wet lab” for helping bioscience startups.
• Washington created its very own venture capital fund – the Life Sciences Discovery Fund (which is not 40% diverted back to balancing the state’s budget)
• INTEC shuts down.
• The Entrepreneurs Forum of the Northwest scales back, eventually closing in 2008.
• 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, re-emerged years later as a social and professional networking group.
• Gonzaga University ends the last of its graduate degrees in engineering
• WSU-Spokane ends its Masters programs in electrical and mechanical engineering (where they had once even offered a concentration in robotics).

In 2006, the Governor’s Policy office issued 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. ”

(Page 16, The Next Washington Report, Sep, 2006)

Several State laws were passed to enforce “clustering”.  The State would identify the key clusters for each of its 12 economic development regions and state agencies were directed to comply with the cluster selections by aligning their programs and services to support the designated clusters – and to de-emphasize and even remove support for non-designated clusters.

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/)

In English, a host of government agencies (and others not shown) would need to realign their emphasis to support the selected “key economic clusters”.

By late 2009, the set of Spokane clusters had mutated again into two separate lists, depending on which central planner made the list:

Clusters would be either:

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

Or may be:

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

You will note that “high tech” dropped off the list entirely – and of course, bioscience appears on some lists and not on others. Regardless, support for high technology in Spokane is de-emphasized by the State, even though local promoters still claim Spokane is a “High Tech Hot-Spot” and home to an “IT cluster”.

The idea of clusters makes sense – but a top down central planning approach is a bad idea, made clear by the mutating lists of clusters, sometimes only months a part. As we will see in a future post, clusters are often created from natural advantages of geography (mining, timber, agriculture, including mining and agricultural equipment and even Hollywood because the nice weather made year round filming possible). In other cases, clusters have been created inadvertently as a side effect of some other government policy – for example, World War II played a major role in growing aerospace in Southern California, and the Cold War was very influential in creating a high technology center in Silicon Valley (which back then was called Santa Clara Valley and was famous for growing prunes …). The Cold War resulted in government contracts for radar, communications systems, avionics, semiconductor development and more – all of which led directly to the creation of a high technology cluster.

More to come …

Related Articles

• Innovation Clusters and Systems (africaunchained.blogspot.com)
• Reseeding the Economy (blogs.hbr.org)
• Tangential Innovation Communities (relationship-economy.com)
• Feeling the Cluster Funk? (relationship-economy.com)
• New Kauffman Foundation Paper Advances Regional Policies for Fostering Entrepreneurially Driven Economic Growth (kauffman.org)