Earlier this semester, I enrolled in a course on regional economic development through the architecture school’s Department of City and Regional Planning. From the onset, our professor challenged us to look at different aspects of economically successful areas to choose a factor or indicator that we believe is most important to creating a successful regional economic development strategy. In thinking about it, and in doing the assigned readings and research for the course so far , I have come to believe that business “clusters,” as planning theorist and professor Michael Porter calls them, are the most important factor in regional development. In several of his articles, especially “Locations, Clusters, and Company Strategy,” Porter argues that the most important feature of a region’s economic health and growth is the existence or creation of “clusters,” which are essentially local networks of businesses and companies in related fields and industries. Clusters may form in an area for a variety of reasons, such as the presence of a major firm such as Kodak or Microsoft (members of the Rochester, NY, imaging and Silicon Valley technology clusters, respectively), which require smaller firms to supply them with parts, service, or consultation, the presence of funding, especially from the federal government, or because of the presence of necessary resources, and help to stimulate local and regional economic stability and growth.
The “clustering” theory of development is something like this: once a major firm or several smaller firms are in place, they immediately start the development of a business network, from the most simple levels all the way up. For example, workers from offices or factories have to go out to eat or have to order in, just as they also need their offices cleaned and maintained. As a result, a number of low-skilled, specialized businesses pop up to meet those needs. In addition, companies also need parts, consulting, and research done (if they do not have their own R&D division) for the actual production or provision of their good or services, and so more businesses and possibly even educational institutions are founded or improved to meet those needs. Larger firms may also have gaps in the types of services they provide or in the types of products they develop and produce, and so other businesses spring up to fill those gaps, ones that may even be founded by former employees of the original companies. This list of things goes on and on and, as you can see, creates a network of businesses and services that are related, interlinked, and often interdependent, relying on each other to remain productive and profitable.
The biggest finding of Porter’s and other’s research, however, is that these networks that are formed may spread outside of an area to some degree, but mostly tend to cluster within one immediate region, something which many people may find surprising given growing amounts of globalization and communication, but which makes a lot of practical sense if you think about it. For one thing, it is cheaper and faster to transport parts, products, and people to related businesses if they are all in close proximity to each, cutting costs and increasing efficiency. Secondly, it allows many business to share services and resources, such as water, electricity, roads, etc., instead of having to find or build their own in a different area. Thirdly, it creates a larger labor pool to draw from, with different companies’ employees locating in one area, as well as local schools and universities turning out workers with degrees in related fields. Finally, no matter how advanced technology gets, there is nothing that can truly compare with being able to meet and talk with someone in person. People like to see and talk with people they will be doing business with in person, and having related companies in one area makes this possible.
Although no one can ever be certain exactly what successful regions have that unsuccessful ones do not, I believe that the presence, or lack there of, of clusters is a major difference between the two. For a number of reasons, business tend to develop robust and intracate networks with a given region and help bringing about economic vitality. By creating a need for basic and specialized services and products, and by inspiring and paving the way for new firms, business clusters spur economic growth within regions and create a stream of revenue into the area. Although there are other aspects of economic development, I think regional and city planners should think about the development and presence of clusters in writing their economic plans.
Michael Porter’s “Locations, Clusters, and Company Strategy” can be found at:
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