January 11, 2006

Governments should aid process of creating industry clusters rather than specific industries, according to study from Weatherhead School of Management

Most clusters arise spontaneously, study finds

Bo Carlsson
Bo Carlsson

As jobs in many traditional manufacturing industries have declined or disappeared in recent decades, policymakers have sought ways for government to help stimulate the creation of new jobs Frequently the goal has been to create clusters of firms in related industries, such as exist in California's Silicon Valley or the Route 128 corridor near Boston. But a study from Case Western Reserve University's Weatherhead School of Management suggests that most industry clusters arise spontaneously, and that the most effective role government can play is to provide support and reinforcement for the process through which clusters are formed.

In a recent paper Bo Carlsson, the E. Mandell deWindt Professor of Industrial Economics, surveys the emergence of industry clusters and one "regional agglomeration" in the U.S. and abroad and examines what role, if any, public policy played in their development. The clusters are the pharmaceutical industry in the mid-Atlantic region, the automobile industry in Detroit, the motion picture industry in Hollywood, Route 128, Silicon Valley, the biotech industry around Washington, D.C., the venture capital industry in Israel, the information and communication technology (ICT) clusters in Ireland, and biotechnology clusters on the east coast of China. The regional agglomeration—a looser, less-evolved form of a cluster—is the emergence of Research Triangle Park in North Carolina.

Carlsson notes that while public policy played a role in developing many of the clusters, the role was often inadvertent, in the sense that creating a cluster or agglomeration was not a policy goal. Only in the cases of the venture capital industry in Israel and biotechnology clusters in China was the outcome intentional and directed at a specific type of industry. By contrast, in the U.S. state and local government policies generally have been limited to infrastructure, and are usually in response to, rather than anticipation of, emerging clusters.

Carlsson identifies six resources required for an industry cluster to develop successfully. These include a sufficient knowledge base, financial and human resources, market identification by firms, a sufficient number and variety of actors, such as private industry, government, universities, and entrepreneurs; and networks between and among the various types of actors and institutions.

Given the long time horizons necessary for most clusters to evolve and the many variables that go into their creation, Carlsson believes governments should not attempt to target a particular industry or sector for growth. Instead, policymakers should focus on helping to create the conditions and providing the resources necessary for clusters to evolve. They are ascertaining the existence of a knowledge base, creating incentives to reinforce positive elements or overcome barriers, promoting entrepreneurial experiments, creating markets or appropriate market conditions, creating financial and human capital resources, and promoting positive externalities, such as knowledge spillovers.

Carlsson concludes by noting that the public policy requirements necessary for creating a cluster vary widely and must be tailored to each time and place. "In the end, success or failure depends on the creativity and persistence of the entrepreneur – with an element of luck, as well."

The Case Western Reserve University Weatherhead School of Management is an international center of management scholarship, committed to preparing and enhancing organizational leadership. The Weatherhead School is dedicated making discoveries of enduring consequence, developing innovative educational programs, fostering strategic partnerships with students and organizations, and providing services to multiple communities.

For more information: Jeff Bendix 216-368-6070.

Posted by: Heidi Cool, January 11, 2006 04:20 PM | News Topics: Research, Weatherhead School of Management

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