This article discusses the concept of industry clusters and offers insight into the factors that make them a successful approach to economic development.
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Pd0601 Industry Clusters
1. When Are Industry Clusters an Appropriate Economic
Development Tool?
By Michael Stumpf, January 2006
I
ndustry clusters may be defined as groupings Silicon Valley still gets the most attention, but
of firms using similar technologies or serving clusters do not need to be high tech or exist in
similar markets, together with closely linked such tightly defined geographic areas. This is
suppliers, a local talent base, and supporting especially true in rural places. The meat pro-
institutions. Economists have noted that these cessing industry, for example, is concentrated in a
clusters tend to stimulate continuous upgrading, broad swath of the western plains, from Texas up
generate spin-offs from larger firms in the cluster, to Nebraska. This example is particularly good at
and encourage innovation and entrepreneurship. demonstrating another fact about clusters. They
The regions in which clusters can be found will can migrate. Proximity to places where large
also exhibit specialized and advanced production number of cattle are raised, improvements to
factors such as talent, capital, and infrastructure. transportation and refrigeration, and high union
wages combined to cause many meat processors to
Cluster initiatives carried on by economic
relocate from places like Iowa, Illinois, and
development organizations seek to encourage and
Wisconsin.
build upon these traits. While this has become a
popular approach to economic development, While most cluster initiatives center around
many of these initiatives are bound to fail either manufacturing, there are exceptions like "creative
because they are not appropriately organized, or in services" in Portland, Oregon or media in Santa
reality, no cluster exists on which to build a Fe, New Mexico. Rural places have similar op-
program. A cluster initiative is not an attempt to portunities for cluster development. Agricultural
create an industry grouping where nothing exists, Industries may come to mind first, but some less
but rather, it is a catalyst to improve the obvious choices include wind energy in the
competitiveness of the region and spur new Dakotas or meteorology in Oklahoma. Regardless
growth. They are most effective when applied to of the industry, the boost provided by an effective
emerging and naturally-occurring clusters. cluster initiative can prove to be a catalyst for
regional economic prosperity.
Place Dynamics
Michael Stumpf is a consultant in community planning, economic development, and
1 market analysis, based in New Berlin, Wisconsin.