SwampFox

Is the SC Policy Council right? Is cluster strategy just another name for old style government planning?

Submitted by: John Warner on Nov 16, 2009 at 12:05 am Tagged with: Economic Development Source: Swamp Fox

The SC Policy Council released a report, Unleashing Capitalism: A Prescription for Economic Prosperity in South Carolina. That sounds pretty good. I'm intrigued.

Chapter 6, "Cluster Theory: A New Prescription for Old Style Government Planning," was written by Frank Hefner. In 2003, Michael Porter released a strategic plan for South Carolina based on an analysis of industry clusters in the state. Mr. Hefner is pretty hard on Dr. Porter's prescription, "question[ing] whether cluster analysis is but a passing fad, or as they say, 'the latest craze in a field prone to embrace miracle solutions only until a more fashionable solution emerges.'"

Interestingly, the author begins the chapter citing Adam Smith's Wealth of Nations. I'm not sure if Mr. Hefner actually read the Wealth of Nations, it is one of the most famous books that hardly anyone has actually read, but if he had he would have found that Adam Smith provides, of all things, a cluster analysis. That is what the famous pin factory is. One person performing every step necessary to make a pin can make a few a day. But several people who each specialize in making one part of a pin can make thousands of pins in a day. A cluster of skilled workers leads to high productivity leads to increased output leads to increased income and wealth. The Wealth of Nations was published in 1776, so cluster analysis is at least several centuries old.

Actually Mr. Hefner reminds me of someone else who questioned cluster theory. In 2008, Governor Sanford expressed concern that we have been “chasing the latest trends in economic development [from]… "clusters" [to]… "headquarters"… [to] "knowledge-based." My response to the Governor was that cluster analysis isn't a few centuries old, it is actually a few millennia old. Plato observed 2,400 years ago that everyone in his city needed food, shelter, and clothing to survive. If some will be farmers, and others builders, and others tailors, each will learn to become more skilled in doing his or her job. Enhanced education leads to specialization, which increases innovation and productivity, growing income and wealth. So Plato started a 2,400 year old fad. The theory of clusters is pretty straight forward, as most concepts that are right usually are, and I put together a quick presentation called Plato's City based on his illustration from The Republic.

Actually Mr. Hefner didn't need to trash the idea that clusters create wealth in order to make his main point, which is that the government ought not be involved in picking politically favored clusters. "Action by government is not costless. In the process of attempting to pick winners, government policy often creates losers." That is a legitimate concern. In fact I have argued that government should always have industry as a partner, because industry is closest to the customers. The South Carolina Centers of Economic Excellence Act, commonly known as the endowed chair program, is one of the most significant pieces of knowledge based economic development implemented by the Legislature. Echoing Mr. Hefner's concern, I opined a few months ago that "we need more engagement between industry and academia to foster innovation that commercializes research," and a year ago that "I am a huge supporter of the endowed chair program, but I am concerned when the matches come from somewhere other than a private company, because we risk losing the connection between the university research and its commercialization in the marketplace."

Towards the end of his chapter, Mr. Hefner grudgingly accepts that there might be something to cluster analysis, but then observes that, "the method provides almost no guidance on how to actually develop a successful cluster." That is a very valid observation. Dr. Porter's consulting firm, the Monitor Group, is great at 55,000 feet, but when it comes to actual implementation they haven't been in the trenches before, at least that was my experience with the Monitor Group folks I talked with.

Solving that problem of creating a community, or a cluster, is the focus of the InnoVenture process which we have refined in the past year to include:

• Define relationships a Champion needs to accomplish an important objective.
• Organize a team of Colleagues who have an interest in and access to those relationships.
• Create a Forum with topics attractive to those relationships.
• Colleagues invite their contacts to the Forum, cross-pollinating their relationships.
• Invitees register to attend the Forum, forming a Community around the Champion’s objective.
• The Champion and Colleagues follow-up after each Forum.
• Execute this on the specially designed, web-based InnoVenture Platform.

InnoVenture has five interesting Forums coming up in the Spring, each of which is based on this process and will kick off a Community around the priority of one of our Anchors. In fact, click on the My Community tab above, and you'll find over 3,400 online profiles from the Swamp Fox Community which has been created around the annual InnoVenture Southeast conference in recent years.

Mr. Hefner is right about one other thing. "The cluster methodology is blessed with a Harvard cachet. The Harvard connection provides some sense of validation." There is this country song, "I was country before country was cool." Well I have been talking about creating a knowledge economy in South Carolina since before it was cool. I was at the meeting in 2003 when Dr. Porter unveiled his strategy. When he was finished, a friend came up to me and said, "that's what you have been talking about all these years. Why wasn't that you up there giving that presentation?" Well, the answer, of course, is that I don't live in Cambridge, MA, but rather strategize from humble Snow's Island, deep in the Lowcountry swamps of South Carolina.