Roles of Clusters of Excellence in Fostering Economic Growth

1. Roles of Clusters of Excellence in Fostering Economic Growth Can New Products and New International and Domestic Marketing Channels Increase Rural Incomes? Ideas, Models, and Evidence Sonoma Valley Inn Sonoma CA Michael Boland June 19, 2005 Kansas State University

2. Motivation • 2005 Galbraith Forum and Medal Recipient • Professor Michael Porter (Harvard University) • July 24 preconference at AAEA • Describes Michael Porter and his contributions to competitiveness and economic clusters • Four cases were commissioned for the preconference • Linked to work on geographic indications and business development. • ISU CARD program and tour

3. What is a cluster? • Critical masses of unusual competitive success in a particular field • Many examples in agriculture especially outside the US. • Geographic concentrations of interconnected companies and institutions in a particular field • Silicon Valley and Hollywood • Linked industries and services • Specialized inputs and outputs • Include educational institutions that provide support for the cluster

4. Clusters are difficult to quantify. • Standard ways of classifying industries obscure cluster identification. • Promote cooperation and competition • A cluster allows each member to benefit as if it had greater scale or as if it had joined with other members without giving up its uniqueness. • Some aspects of a cluster are similar to clubs • The literature uses club theory to help motivate why clusters exist

5. Clusters are vital to competition. • Competition in 21st century depends upon productivity • Access to inputs and scale are important but productivity is the crucial element • Globalization is creating easier access to low cost sources of inputs • How to use those inputs productively is the key for competitive advantage • Clusters affect competition by • Increasing productivity among businesses in the cluster • Driving innovation • Stimulating the growth of new businesses. • Governments can help foster growth of clusters through policy.

6. Three Strands of Research on Clusters • Spatial agglomeration of economic activity • Krugman and Arthur • Focus on mathematical models of IRTS • Mobility of labor and land • Porter • Cases studies on clusters in various countries • Long-run regional growth convergence • Barro • Focus on convergence of growth rates over regions • Cultural aspects • Detailed cases on clusters • Antonelli and others on the “third Italy” and its industrial districts • Focus on social, cultural, and institutional foundations for the cluster • Amin and work on regulation political economy in France • Includes governance, competition, and social regulation

7. Cultural aspects of clusters offer opportunities for research. • Many clusters are food related. • Many applications to business development and policy. • Linked to trade and marketing issues • Geographic indications • Agricultural economists are involved in clusters through education, training, and applied research. • Dairy cluster in Wisconsin; pork cluster in Iowa and Indiana; wheat to a lesser extent in Kansas; others likely exist.

8. Research • Detailed cases of clusters • Very few exist • Many opportunities • Needs field work which is extensive but necessary to understand the uniqueness of the cluster • The Italian clusters would be of interest. • Little economic research on identification of specific clusters using mathematical tools • Some work done in UK (Quay) • Opportunity for doctoral research

9. Policy Issues • Clusters are a ‘hot’ topic right now. • Being used in USAID, World Bank, and other initiatives • Can they work in developing economies? • Need other things first • Property rights, transaction costs, etc. • Can they work in rural areas? • Business development has not really addressed clusters in a coherent manner. • Opportunities exist to do so.

10. Can clusters promote rural incomes? • Need to understand the economics first • Access to inexpensive inputs such as corn (industrial use) or labor (dairy) and which inputs are mobile • Transportation, logistics, and access to demand points • Need to create the mechanism for trust and cooperation • Some planning is needed • Need to get industry, trade associations, local policy makers, and research and training organizations on board. • Concept of “strategic intent” • Single-minded focus on an end result (e.g., 100 life science companies in Iowa by 2010) • Need to be focused (an ethanol industry may not be feasible in MT) • Uniqueness needs to be understood • Do the social aspects of clusters appeal to businesses? • Organic, natural foods, etc. • Governance issues and cultural exist and may be different • Trade vs. domestic markets • How should a cluster be developed? • Need to get “ideas” like this in front of policy makers