Achieving Greater Cluster-Based Economic Growth by Incorporating Inner Cities

Achieving Greater Cluster-Based Economic Growth by Incorporating Inner Cities

Above: Michael Porter at the 2011 Inner City Economic Summit as he explains the importance of inner cities to regional cluster-based economic strategies 

Over the past week, there have been multiple articles discussing the importance of clusters in promoting economic development strategies. Authors argue that while technology has made it easier than ever to connect with one another in a globalized world, proximity to other like businesses is still paramount.

How do we know that place still matters? In a post by Area Development, the author explains:

Sixty percent of the respondents to Area Development’s 2010 Corporate Survey said the presence of activities similar to theirs was a consideration when selecting a site. More recently, a 2011 Brookings Institution report showed that “strong clusters foster innovation through dense knowledge flows and spillovers; strengthen entrepreneurship by boosting new enterprise formation and start-up survival; enhance productivity, income levels, and employment growth in industries; and positively influence regional economic performance.”

Industry clusters, as defined by Harvard Business School professor and ICIC founder Michael E. Porter, are geographic concentrations of interconnected companies, specialized suppliers, service providers and associated institutions in a particular field that are present in a specific geography. Clusters arise because they increase the productivity with which companies can compete.

In a separate article on Area Development, Christopher Steele notes that, “From a competitive perspective, the cluster permits access to specialized information on the market. This includes general market conditions, technical information on the network of providers and partners. It also provides real-time information on one’s competition through direct interaction in the local network. This in itself can drive innovation.”

The importance of clusters has not subsided, as some have argued.

Indeed, we’re increasingly seeing how the emergence of underutilized clusters, like the food cluster, can help foster urban economic development.

Sure, clusters are important to regional economic development. But a concerted effort must be made to include inner cities as part of a regional strategy. Poverty, especially minority poverty, is concentrated in inner cities. Inner cities have a younger and more diverse population than the rest of the U.S., and they are important sites for minority-owned businesses. Creating jobs in the region isn’t enough for supporting the urban core; often inner city residents cannot access jobs in rest of the region.

As Porter explained at ICIC’s 2011 Inner City Economic Summit, the regional cluster-plans adopted by many of our metros often fail to include strategies for inner city economic development. As it stands, the correlation between regional and inner city growth is only 20%--indicating that the conventional growing of regional jobs is helpful but not sufficient. He states:

Inner cities have a different rhythm. They have different drivers. Yes, if the regional economy grows, that’s a good thing. But there’s a very weak correlation between the regional economic growth and the inner city economic growth in terms of jobs…What this says is we have to have a regional strategy, and that’s critical, but if we care about equity, if we really care about tackling poverty in economically disadvantaged areas, we actually have to add an additional set of dimensions.

In other words, regional cluster-based growth doesn’t automatically lead to inner city growth and strategies developed to leverage regional assets and opportunities can overlook unique and valuable opportunities for inner city growth. By including inner city strategies throughout the regional planning process, regions can better achieve growth and equity.

So how do we promote cluster-based economic development that directly benefits inner city economies?

Porter explains that we should invest in growing local clusters, specifically in business-to-consumer (B2C) clusters. These serve local consumers, such as local health services and local hospitality establishments. Inner city employment growth in B2C clusters has been 6.6% from 1998-2009. Compare this to business-to-business (B2B) and hybrid (B2B/B2C) clusters, which have resulted in -5.7% growth in inner city employment growth over the same period. Moreover, B2C clusters like retail serve local populations, improve quality of life and provide the most accessible entry-level jobs.

How should economic development practitioners identify which B2C cluster to leverage?

First, they should assess their distinctive competitive position given geographic location, legacy, existing and potential strengths. What unique value does this inner city have as a business location? And for which types of activities and clusters?

Equipped with this knowledge, cities can then hone areas in which they’re strong, and address weaknesses where they lag behind peer locations.

Strengthening inner cities can (and should) be done within a regional framework.  Approaches will be most successful when there is collaboration between multi-levels of government, teaching and research institutions and private sector organizations. Working together helps to strengthen relationships between inner city firms and leading cluster actors. Individual firms, largely thought of as abiding by policy as opposed to participating in the creation of it, can help by creating linkages with capital access and business development services.

By including inner city economies in broader regional economic development plans, it helps urban businesses leverage the tailored training, education and programs that many states and regions already have in place to build existing clusters or foster the development of new clusters. 

Ultimately, a collaborative approach that includes inner city economies will provide the strongest regional cluster-based economic development—because regions that proactively address issues of poverty and equity enhance their overall competitiveness.

While we know that cluster-based economic development can promote job growth and prosperity in urban economies, few cities are actually using such a strategy. Do you know of a city using local clusters to encourage growth?  Where are regions making a concerted effort to include inner cities in their cluster-based strategies?

Join the discussion via Twitter @icicorg or read more from @amandammaher. 

From Al Jones via LinkedIn:

All regions function because of the health of the clusters that have developed there, most are just unrecognized and “unstrategized” beyond companies trying to get specific needs met locally by being a customer, supplier, and sometimes investor.

When you look at inner cities, preferably on foot and entering many of the buildings and spending a lot of time talking to the residents (always a lot of surprises), you see clusters of old housing run as highly profitable rental properties (slumlording is a major economic cluster making the status quo profitable for surprising folks), highly profitable retail in old buildings with too little square footage to grow to significant employers, abandoned buildings which bring down the value of surrounding buildings by perhaps 30% or more making the abandoned and deteriorating structures one of the most influential clusters.
The criminal enterprises allowed to operate in the fragmented, transient, and mostly ignored inner cities are very significant economic clusters: drug distribution, extortion, gambling, prostitution/“white slavery”, murder and arson for hire, loan sharking, vehicle theft/chop-shops, smuggling goods and illegal aliens, shoplifting in volume, burglary, pilferage rings at businesses, debt collection, drug manufacturing, kidnapping, counterfeiting, forced investment into legitimate businesses (grocery stores are the preferred route for money laundering these days, bars just don’t do enough volume), hijacking freight, etc.. In other words they impede most other clusters and hollow out neighborhoods over time. Tax-breaks don’t overcome the risk of investing and operating there, so disrupting and breaking the criminal clusters is the hard work that’s usually ignored or downplayed.

A poor neighborhood typically has considerable available buildings and space remaining that provided the manufacturing jobs that built the neighborhood originally, often built on cheap unskilled labor that declining immigration of healthy young adults willing to work brutal hours under often abysmal conditions.

A cluster strategy to revive quality jobs in poor neighborhoods, creating households with real buying power, options, hope, consumer credit, etc. is really about human capital development…sufficient training and overcoming other barriers (childcare, transportation, safety) are the challenge.

Training people for jobs that aren’t already or immediately available is heartbreaking for the trainees and squanders the always rare training dollars (use it or lose it knowledge) so we focused on getting the companies going and then tying the training to actual employers for actual jobs which works pretty well.

Poor neighborhoods have a challenging workforce: older, sicker, single heads of households with young children at home, sometimes poorly educated, sometimes little work experience or developed skills (although more skilled people, military veterans, former small business owners, craftsmen, creative folks, etc. than stereotypes would lead one to expect.) They don’t lack for hard workers, like suburbs can. A lot of clusters develop based on the working poor scattered in rural and small towns, just as poor as those in the inner city but they’re nearly invisible rather than readily spotted from a moving car or tv news footage.

It’s a resource intensive and complex cluster development strategy when the resources for developing far easier clusters are usually pretty trivial.

By Al Jones on 12/14/2011

Interesting article. Please add me to your e-list.

By doc thorne on 12/14/2011

I think that intermediary organizations could support cluster strategies in inner city neighborhoods if they were to integrate maps into the network-building and innovation strategies.

I’ve been hosting a map-based strategy since 1993 aimed at helping volunteer-based tutor/mentor programs grow in high poverty neighborhoods. Such programs could engage volunteers from many industries, faith groups, professions and reach youth in more places if there were leadership strategies trying to make this happen.

The key to this is that I’ve been collecting information about non-school tutor/mentor programs and publishing this as a map-directory since 1994. Visit the interactive map at http://www.tutormentorprogramlocator.net/InteractiveMap.aspx and see how you can build layers of information showing where programs are most needed based on poverty information. Use the asset maps and see how you can create maps zip code and smaller areas showing the different mix of churches, businesses, colleges, hospitals in different parts of the city, along with highways that bring people through these neighborhoods every day as they come and go to work.

Any one could take the intermediary role of trying to bring more of these assets together into networking and learning that leads to new strategies to support youth moving through school and into careers in these areas.

In your research on this topic are you aware of maps being used in this manner in any cities where there are many neighborhoods with highly segregated poverty concentrations?

By Daniel Bassill on 12/19/2011

Hah, seriously? That’s rediculous. No way

By Welding Electrodes on 12/19/2011





BY Amanda Maher on December 12th, 2011

TAGS: cities | clusters | food | economic development

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